NOTICE CITY OF CLOVIS, NEW MEXICO $9,000,000* Gross Receipts Tax Improvement Revenue Bonds, Series 2012 The Preliminary Official Statement, dated September 14, 2012 (the "Preliminary Official Statement"), relating to the above-described bonds (the "Bonds") of the City of Clovis, New Mexico (the "City"), has been posted as a matter of convenience. The posted version of the Preliminary Official Statement has been formatted in Adobe Portable Document Format (Adobe Acrobat 8.0). Although this format should replicate the Preliminary Official Statement available from the City, appearance may vary for a number of reasons, including electronic communication difficulties or particular user software or hardware. Using software other than Adobe Acrobat 8.0 may cause the Preliminary Official Statement that you view or print to differ in appearance from the Preliminary Official Statement. The Preliminary Official Statement and the information contained therein are subject to completion or amendment or other change without notice. Under no circumstances shall the Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. For purposes of Rule 15c2-12 promulgated by the Securities and Exchange Commission, the Preliminary Official Statement alone, and no other document or information on the internet, constitutes the "Official Statement" that the City has deemed "final" as of its date in respect of the Bonds, except for certain information permitted by Rule 15c2-12 to be omitted therefrom. No person has been authorized to give any information or to make any representations other than those contained in the Preliminary Official Statement in connection with the offer and sale of the Bonds and, if given or made, such information or representations must not be relied upon as having been authorized. The information and expressions of opinion in the Preliminary Official Statement are subject to change without notice and neither the delivery of the Official Statement nor any sale made thereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the City since the date of the Preliminary Official Statement. By choosing to proceed and view the electronic version of the Preliminary Official Statement, you acknowledge that you have read and understood this Notice. *Preliminary, subject to change. This Preliminary Official Statement and the information contained herein are subject to completion and amendment. Under no circumstances shall the Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Preliminary Official Statement dated September 14, 2012. NEW ISSUE – BANK QUALIFIED MOODY’S RATINGS: "____"; See "RATINGS" herein. In the opinion of Modrall, Sperling, Roehl, Harris & Sisk, P.A., Bond Counsel, under existing laws, regulations, rulings and judicial decisions, and assuming compliance with certain covenants described in "TAX EXEMPTION" herein, interest on the Bonds (including original issue discount treated as interest) (a) is excludable from the gross income of the recipients thereof; for federal income tax purposes, (b) is not a specific preference item for purposes of the federal alternative minimum tax for individuals and corporations, but such interest on the Bonds will be included in the adjusted current earnings of certain corporations, and (c) is excludable from net income for purposes of certain New Mexico taxes imposed on individuals, estates, trusts and corporations. For a more complete description of such opinion of Bond Counsel and a description of certain provisions of the Internal Revenue Code of 1986, as amended, which may affect the federal tax treatment of interest on the Bonds for certain owners of such bonds, see "TAX EXEMPTION" herein. CITY OF CLOVIS, NEW MEXICO $9,000,000* Gross Receipts Tax Improvement Revenue Bonds, Series 2012 Book-Entry Only Dated: Date of Delivery Due: June 1, as shown on inside cover The City of Clovis, New Mexico Gross Receipts Tax Improvement Revenue Bonds, Series 2012 (the "Bonds") are being issued by the City of Clovis, Curry County, New Mexico (the "City") to provide funds for (1) acquiring, constructing, reconstructing, resurfacing, maintaining, repairing or otherwise improving municipal streets, including storm drainage and sanitary sewer projects directly related to a street project, and (2) paying expenses and costs of issuance related to the issuance of the Bonds. See "PURPOSE AND PLAN OF FINANCING" herein. The Bonds are being issued pursuant to the general laws of the State, including Sections 3-311 to 3-31-12 NMSA 1978, as amended (the "Act"), and enactments of the City Commission relating to the issuance of the Bonds, including the Bond Ordinance (as defined herein). The Bonds are issuable only as fully registered bonds in denominations of $5,000 each or any integral multiple thereof. The Bonds will bear interest from the delivery date and interest is payable on June 1 and December 1 of each year commencing June 1, 2013, as more fully described herein. The Paying Agent and Registrar is the City Treasurer, Clovis, New Mexico. SEE MATURITY SCHEDULE SET FORTH ON THE INSIDE COVER OF THIS OFFICIAL STATEMENT. The Bonds will be issued pursuant to a book-entry-only system and will be registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC") New York, New York. Purchasers of the Bonds ("Beneficial Owners") will not receive physical delivery of bond certificates representing their beneficial ownership interests. So long as DTC or its nominee is the owner of the Bonds, disbursement of payments of principal and interest to DTC is the responsibility of the Paying Agent, disbursement of such payments to DTC Participants (as defined herein) is the responsibility of DTC and disbursement of such payments to Beneficial Owners is the responsibility of DTC Participants, as more fully described herein. See "DESCRIPTION OF THE BONDS – Book-Entry Only System" herein. The Bonds maturing on and after June 1, 2023 are subject to optional redemption on and after June 1, 2022, in whole or in part at any time. See "DESCRIPTION OF THE BONDS – REDEMPTION OF BONDS" herein. The Bonds are offered when, as and if issued by the City, subject to the approval of validity by Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, New Mexico, Bond Counsel, and certain other conditions. Certain legal matters will be passed on for the City by David F. Richards, Esquire, City Attorney. Modrall, Sperling, Roehl, Harris & Sisk, P.A., has also acted as special counsel to the City in connection with the preparation of this Official Statement and the sale of the Bonds. It is anticipated that the Bonds will be available for delivery on or about October 3, 2012 through the facilities of DTC, New York, New York. Electronic and/or sealed bids will be opened at 11:00 AM, prevailing Mountain Time, September 20, 2012 at the offices of RBC Capital Markets, LLC, 6301 Uptown Boulevard N.E., Suite 110, Albuquerque, New Mexico 87110. Dated: September 20, 2012 *Preliminary, subject to change. MATURITY SCHEDULE SERIES 2012 BONDS Maturity (June 1) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Principal Amount $1,260,000 1,225,000 1,270,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 405,000 Interest Rate Price CUSIP Number Electronic and/or sealed bids will be opened at 11:00 AM, prevailing Mountain Time, September 20, 2012 at the offices of RBC Capital Markets, LLC, 6301 Uptown Boulevard N.E., Suite 110, Albuquerque, New Mexico 87110. CITY OF CLOVIS, NEW MEXICO 321 North Connelly Clovis, New Mexico 88101 (575) 541-2000 MAYOR David Lansford CITY COMMISSION Chris Bryant, Commissioner, District 4 Randy Crowder, Commissioner, District 1 Juan F. Garza, Commissioner, District 1 Fidel Madrid, Commissioner, District 3 Robert Sandoval, Commissioner, District 3 Dan Stoddard, Commissioner, District 4 Sandra Taylor-Sawyer, Commissioner, District 2 Len Vohs, Commissioner, Commissioner, District 2 and Mayor Pro-Tem CITY ADMINISTRATION Joe Thomas, City Manager LeighAnn Melancon, Finance Director, City Treasurer and City Clerk Donald E. Clifton, Director of Budget and Internal Operations CITY ATTORNEY David F. Richards FINANCIAL ADVISOR RBC Capital Markets, LLC 6301 Uptown Boulevard, N.E., Suite 110 Albuquerque, New Mexico 87110 (505) 872-5999 BOND COUNSEL Modrall, Sperling, Roehl, Harris & Sisk, P.A. 500 Fourth Street N.W., Suite 1000 P.O. Box 2168 (87103-2168) Albuquerque, New Mexico 87102 (505) 848-1800 PAYING AGENT AND REGISTRAR LeighAnn Melancon, City Treasurer, City of Clovis 321 N. Connelly Clovis, New Mexico 88101 USE OF INFORMATION IN THIS OFFICIAL STATEMENT No dealer, salesman or other person has been authorized by the City of Clovis, New Mexico (the "City") to give any information or to make any statements or representations, other than those contained in this Official Statement, and, if given or made, such other information, statements or representations must not be relied upon as having been authorized. This Official Statement does not constitute an offer to sell or solicitation of an offer to buy any of the Bonds in any jurisdiction in which such offer or solicitation is not authorized, or in which any person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. The information set forth or included in this Official Statement has been provided by the City and from other sources believed by the City to be reliable. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale hereunder shall create any implication that there has been no change in the financial condition or operations of the City described herein since the date hereof. This Official Statement contains, in part, estimates and matters of opinion that are not intended as statements of fact, and no representation or warranty is made as to the correctness of such estimates and opinions or that they will be realized. The Bonds have not been registered under the Securities Act of 1933 in reliance upon exemptions contained in such Act. The registration and qualification of the Bonds in accordance with applicable provisions of the securities law of the states in which the Bonds have registered or qualified and the exemption from registration or qualification in other states cannot be regarded as a recommendation thereof. Neither the Securities and Exchange Commission nor any other federal, state, municipal or other governmental entity, nor any agency or department thereof, has passed upon the merits of the Bonds or the accuracy or completeness of this Official Statement. Any representation to the contrary may be a criminal offense. This Official Statement is "deemed final" by the City for purposes of Rule 15c2-12 promulgated by the Securities and Exchange Commission. The City has covenanted to provide such annual financial statements and other information in the manner as may be required by regulations of the Securities and Exchange Commission or other regulatory body. This Official Statement contains statements that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. When used in this Official Statement, the words "estimate," "project," "intend," "expect" and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE CITY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Copies of the Bond Ordinance authorizing the issuance of the Bonds are available upon request at the office of the City Clerk, City Hall, 321 North Connelly, Clovis, New Mexico. TABLE OF CONTENTS INTRODUCTION .........................................................................................................................................................1 THE ROAD/FACILITY IMPROVEMENT PROJECT ................................................................................................2 SPECIAL FACTORS RELATING TO THE BONDS..................................................................................................2 GROSS RECEIPTS TAX COLLECTIONS ARE SUBJECT TO FLUCTUATION .................................................... 2 BANKRUPTCY AND FORECLOSURE............................................................................................................ 3 LIMITED OBLIGATIONS ............................................................................................................................. 3 ADDITIONAL PARITY OBLIGATIONS ......................................................................................................... 3 SECONDARY MARKET ............................................................................................................................... 3 STATE LEGISLATION ................................................................................................................................. 3 CITY CANNOT INCREASE DISTRIBUTION OF TAXES.................................................................................. 4 BOND RATINGS ......................................................................................................................................... 4 DESCRIPTION OF THE BONDS ................................................................................................................................4 GENERAL ................................................................................................................................................... 4 PAYMENT - REGULAR RECORD DATE ....................................................................................................... 5 OPTIONAL REDEMPTION ........................................................................................................................... 5 REDEMPTION PROCEDURES....................................................................................................................... 5 CONDITIONAL REDEMPTION ..................................................................................................................... 6 REGISTRATION, TRANSFER AND EXCHANGE OF BONDS ........................................................................... 6 BOOK-ENTRY ONLY .................................................................................................................................. 7 SOURCE OF PAYMENT ............................................................................................................................... 9 FUNDS AND ACCOUNTS........................................................................................................................... 10 DISPOSITION OF BOND PROCEEDS .......................................................................................................... 10 DEPOSIT OF PLEDGED REVENUES AND FLOW OF FUNDS. ....................................................................... 10 GENERAL ADMINISTRATION OF FUNDS .................................................................................................. 13 DEFAULT, REMEDIES AND CITY DUTIES ................................................................................................. 13 DEFEASANCE ........................................................................................................................................... 14 AMENDMENT ........................................................................................................................................... 14 SECURITY FOR THE BONDS..................................................................................................................................15 PLEDGE AND SECURITY........................................................................................................................... 15 SPECIAL LIMITED OBLIGATIONS ............................................................................................................. 15 PURPOSE AND PLAN OF FINANCING..................................................................................................................16 PURPOSE .................................................................................................................................................. 16 SOURCES AND USES OF FUNDS ............................................................................................................... 16 ANNUAL DEBT SERVICE SUMMARY..................................................................................................................16 PLEDGED REVENUES .............................................................................................................................................18 OTHER GROSS RECEIPTS TAXES (NOT PLEDGED) ................................................................................... 19 GROSS RECEIPTS REPORTED BY STANDARD INDUSTRIAL CLASSIFICATION .......................................... 20 HISTORICAL TOTAL GROSS RECEIPTS REPORTED FOR CITY, COUNTY AND STATE ............................... 21 HISTORICAL TAXABLE GROSS RECEIPTS REPORTED FOR CITY AND STATE .......................................... 21 ADDITIONAL OBLIGATIONS PAYABLE FROM PLEDGED REVENUES ........................................................21 STATE SHARED GROSS RECEIPTS TAX PARITY OBLIGATIONS ............................................................... 21 REFUNDING BONDS ................................................................................................................................. 22 CITY COVENANTS IN THE BOND ORDINANCE ................................................................................................23 THE CITY ...................................................................................................................................................................25 GENERAL ................................................................................................................................................. 25 GOVERNMENT ......................................................................................................................................... 25 ADMINISTRATIVE OFFICERS ................................................................................................................... 25 i TABLE OF CONTENTS OTHER EMPLOYEES................................................................................................................................. 25 PUBLIC EMPLOYEE RETIREMENT ASSOCIATION ..................................................................................... 25 NEW MEXICO RETIREE HEALTH CARE AUTHORITY ............................................................................... 26 CITY BUDGETS ........................................................................................................................................ 27 INDUSTRY ................................................................................................................................................ 28 EDUCATION ............................................................................................................................................. 28 AGRICULTURE ......................................................................................................................................... 28 TRANSPORTATION ................................................................................................................................... 28 LABOR FORCE AND PERCENT UNEMPLOYED .......................................................................................... 29 MAJOR EMPLOYERS ................................................................................................................................ 31 PER CAPITA INCOME ............................................................................................................................... 31 EFFECTIVE BUYING INCOME ................................................................................................................... 31 AGE DISTRIBUTION ................................................................................................................................. 32 POPULATION............................................................................................................................................ 32 BUILDING PERMITS AND ASSESSED VALUATIONS .................................................................................. 33 HISTORICAL GENERAL FUND BALANCE SHEET ...................................................................................... 34 HISTORICAL GENERAL FUND REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES............ 35 OTHER CITY OBLIGATIONS ..................................................................................................................... 36 LITIGATION AND INSURANCE .............................................................................................................................37 FINANCIAL ADVISOR .............................................................................................................................................37 TRANSCRIPT AND CLOSING STATEMENTS ......................................................................................................37 TAX EXEMPTION.....................................................................................................................................................38 GENERAL ................................................................................................................................................. 38 INTERNAL REVENUE SERVICE AUDIT PROGRAM .................................................................................... 39 ORIGINAL ISSUE DISCOUNT .................................................................................................................... 39 ORIGINAL ISSUE PREMIUM...................................................................................................................... 40 FINANCIAL STATEMENTS.....................................................................................................................................40 LEGAL MATTERS ....................................................................................................................................................40 RATINGS....................................................................................................................................................................40 CONTINUING DISCLOSURE...................................................................................................................................40 ADDITIONAL INFORMATION ...............................................................................................................................41 OFFICIAL STATEMENT CERTIFICATION............................................................................................................42 APPENDIX A EXCERPTS FROM AUDITED FINANCIAL STATEMENTS OF THE CITY OF CLOVIS, NEW MEXICO FOR THE YEAR ENDING JUNE 30, 2010 ................................................................................. A-1 APPENDIX B FORM OF BOND COUNSEL OPINION........................................................................................B-1 APPENDIX C NOTICE OF SALE ..........................................................................................................................C-1 APPENDIX D CONTINUING DISCLOSURE AGREEMENT……………………………………… …………..D-1 ii CITY OF CLOVIS, NEW MEXICO $9,000,000* Gross Receipts Tax Improvement Revenue Bonds, Series 2012 SUMMARY OF INFORMATION There follows a summary of certain provisions discussed in this Official Statement. SUCH SUMMARY DOES NOT PURPORT TO BE COMPREHENSIVE OR DEFINITIVE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE OFFICIAL STATEMENT. This Summary is only a brief statement and a full review of the entire Official Statement should be made by potential investors. Issuer: The City of Clovis, New Mexico (the "City") The City is a political subdivision of the State of New Mexico (the "State"), organized and existing under the Constitution and laws of the State. The City is the county seat of Curry County, New Mexico. The City was incorporated in 1909, operates under a home rule charter originally adopted in 1971 and last amended in 2004. The City operates under a Commission - Manager form of government under its home rule charter with the Mayor having limited duties. The City is located in the east central portion of the State near the New Mexico - Texas border. The City has an estimated 2010 census population of 37,775. Dated: Date of Delivery. Principal Payment: The Bonds are registered bonds maturing on June 1 of the years set forth on the inside cover page of this Official Statement. Interest Payment: Interest will be payable semiannually on June 1 and December 1, commencing June 1, 2013. Purpose: The City of Clovis, New Mexico Gross Receipts Tax Improvement Revenue Bonds, Series 2012 (the "Bonds") are being issued by the City of Clovis, Curry County, New Mexico (the "City") to provide funds to (1) finance the cost of acquiring, constructing, reconstructing, resurfacing, maintaining, repairing, or otherwise improving municipal streets, including storm drainage and sanitary sewer projects directly related to a street project and (2) pay expenses and costs of issuance related to the issuance of the Bonds. See "PURPOSE AND PLAN OF FINANCING" herein. Authorization: The Bonds are being issued pursuant to the general laws of the State, including Sections 3-31-1 to 3-31-12 NMSA 1978, as amended (the "Act"), the Charter and enactments of the City Council relating to the issuance of the Bonds, including the Bond Ordinance. Security: The Bonds are special limited obligations payable solely from and secured by an irrevocable and first lien (but not necessarily an exclusive first lien) upon the revenues of the 1.225% state shared gross receipts tax (the "Pledged Revenues"). See "SECURITY FOR THE BONDS" herein. Special Obligations: THE PRINCIPAL OF AND INTEREST ON THE BONDS WILL BE PAYABLE SOLELY FROM PLEDGED REVENUES, AND WILL NOT BE *Preliminary, subject to change. PAYABLE FROM ANY FUNDS OF THE CITY EXCEPT THE DESIGNATED SPECIAL FUNDS PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS WILL NOT CONSTITUTE AN INDEBTEDNESS NOR A DEBT OF THE CITY WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION OR LIMITATION NOR WILL THEY BE CONSIDERED OR HELD TO BE GENERAL OBLIGATIONS OF THE CITY. NEITHER THE FULL FAITH AND CREDIT NOR THE GENERAL TAXING POWER OF THE CITY IS PLEDGED FOR THE PAYMENT OF THE PRINCIPAL OF AND INTEREST ON THE BONDS, AND NO OWNER HAS THE RIGHT TO COMPEL THE EXERCISE OF THE TAXING POWER OF THE CITY OR THE FORFEITURE OF ANY OF ITS PROPERTY IN CONNECTION WITH ANY DEFAULT UNDER THE BOND ORDINANCE. Reserve Fund: No deposit to the Reserve Fund will be made from the proceeds of the Bonds. No deposit shall be required in the Reserve Fund so long as the Pledged Revenues in each Fiscal Year equal or exceed 200% of the maximum annual principal and interest coming due in any subsequent Fiscal Year on all outstanding Parity Bonds. If the Pledged Revenues in any Fiscal Year are insufficient to meet the test set forth in the preceding sentence, the City shall begin making substantially equal monthly deposits in the Reserve Fund from the first legally available Pledged Revenues so that after 24 months an amount equal to the Minimum Reserve will be held in the Reserve Fund. Minimum Reserve: The Minimum Reserve, if required, shall be an amount equal to the least of (i) ten percent of the principal amount of the outstanding Bonds, (ii) the maximum annual debt service on the outstanding Bonds, or (iii) 125% of the average annual debt service on the outstanding Bonds. The Minimum Reserve shall be recalculated every year on or about June 1. Optional Prior Redemption: Parity Obligations: The Bonds maturing on and after June 1, 2023 are subject to prior redemption at par at the option of the City, in one or more units of principal of $5,000 on and after June 1, 2022. If the Bonds are optionally redeemed in part, the Bonds to be so redeemed shall be selected by lot by the Registrar in such manner as the Registrar shall consider appropriate and fair. The redemption price will be the principal amount of each $5,000 unit so redeemed, accrued interest thereon to the redemption date. The City has outstanding the following obligations with a parity lien on the Pledged Revenues: (i) the “City of Clovis, New Mexico Gross Receipts Tax Revenue Bonds, Series 2005” issued in the original aggregate principal amount of $3,580,000 and authorized by City Ordinance No. 1808-2005 adopted by the City Commission on March 3, 2005, (ii) the “City of Clovis, New Mexico Gross Receipts Tax Revenue Bonds, Series 2010” issued in the original aggregate principal amount of $7,000,000 and authorized by City Ordinance No. 19342010 adopted by the City Commission on August 19, 2010, (iii) the City of Clovis, New Mexico Gross Receipts Tax Improvement and Refunding Revenue Bonds, Series 2011A” issued in the original aggregate principal amount of 3,527,000 and authorized by City Ordinance No. 1962-2011 adopted by the City Commission on June 16, 2011, and (iv) the “City of Clovis, New Mexico Gross Receipts Tax Improvement Revenue Bonds, Taxable Series 2011B” issued in the original aggregate principal amount of $2,877,000 and authorized by City Ordinance No. 1962-2011 adopted by the City Commission on June 16, 2011. Additional Bonds: In addition to the Bonds, additional bonds may hereafter be issued and secured by and paid from the Pledged Revenues on parity with the Bonds. The City will not issue additional bonds payable from the Pledged Revenues with a lien prior and superior to the lien of the Bonds thereon. Nothing contained in the Bond Ordinance will be construed in such a manner as to prevent the issuance by the City of additional bonds payable from the Pledged Revenues with a lien thereon subordinate and junior to the lien of the Bonds thereon, nor to prevent the issuance of bonds or other obligations refunding all or part of the Bonds as permitted by the Bond Ordinance. Tax Exemption: In the opinion of Modrall, Sperling, Roehl, Harris & Sisk, P.A., Bond Counsel, under existing laws, regulations, rulings and judicial decisions, and assuming compliance with certain covenants in the documents relating to the Bonds and requirements of the Internal Revenue Code of 1986, as amended (the "Code"), interest on the Bonds is excludable from the gross income of the recipients thereof for federal income tax purposes and is not a specific preference item for purposes of the alternative minimum tax for individuals, estates, trusts and corporations, but such interest on the Bonds will be included in the adjusted current earnings of certain corporations, and is excludable from net income for purposes of certain New Mexico taxes imposed on individuals, estates, trusts and corporations. For a more complete description of such opinion of Bond Counsel and a description of certain provisions of the Internal Revenue Code of 1986, as amended, which may affect the federal tax treatment of interest on the Bonds for certain owners of such bonds, see "TAX EXEMPTION" herein. Qualified Tax Exempt Obligations: Secondary Market Disclosure: The Bonds are designated as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Code. The City has no "subordinate entities" with authority to issue tax-exempt obligations within the meaning of that Section of the Code. In that connection, the Commission covenants that the Commission in or during the calendar year in which the Bonds are issued, (i) will not designate as "qualified tax-exempt obligations" for the purposes of Section 265(b)(3) of the Code tax-exempt obligations, including the Bonds, in an aggregate principal amount in excess of ten million dollars and (ii) will not issue tax-exempt obligations within the meaning of Section 265(b)(4) of the Code, including the Bonds and any qualified 501(c)(3) bonds as defined in Section 145 of the Code (but excluding obligations, other than qualified 501(c)(3) bonds, that are private activity bonds as defined in Section 141 of the Code), in an aggregate principal amount exceeding ten million dollars. The City has entered into an undertaking (the "Undertaking") for the benefit of the holders of the Bonds to send certain financial information and operating data to certain information repositories annually and to provide notice to the Municipal Securities Rulemaking Board of certain events, pursuant to the requirements of Section (b)(5)(i) of Securities and Exchange Commission Rule 15c2-12 (17 C.F.R. Part 240, 240.15c2-12). See "CONTINUING DISCLOSURE" herein. Delivery: The delivery of the Bonds is expected on or about October 3, 2012. Bond Counsel: Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, New Mexico Paying Agent/Registrar: City Treasurer, Clovis, New Mexico. OFFICIAL STATEMENT CITY OF CLOVIS, NEW MEXICO $9,000,000* Gross Receipts Tax Improvement Revenue Bonds, Series 2012 INTRODUCTION This Official Statement, which includes the cover page and the appendices hereto, sets forth certain information in connection with the offering of $9,000,000* aggregate principal amount of Gross Receipts Tax Improvement Revenue Bonds, Series 2012 (the "Bonds") to be issued by the City of Clovis, Curry County, New Mexico, pursuant to Ordinance No. 1985-2012 adopted on August 16, 2012, as supplemented by Resolution No. ___ adopted by the City Commission on September 20, 2012 (collectively, the "Bond Ordinance"). The Bonds are payable and collectible solely from the Pledged State Shared Gross Receipts Tax Revenues ("Pledged Revenues"). Pledged Revenues means the revenues from the State gross receipts tax derived pursuant to Section 79-4 NMSA 1978, imposed on persons engaging in business in the State, which revenues are remitted to the City monthly by the New Mexico Department of Taxation and Revenue pursuant to Section 7-1-6 and 7-1-6.4 NMSA 1978, and which remittances currently equal one and two hundred twenty-five thousandths percent (1.225%) of the taxable gross receipts reported for the City for the month for which such remittances is made; provided that if a greater amount of such gross receipts tax revenues are hereafter provided to be remitted to the City under applicable law, such additional amounts shall be included as revenues pledged pursuant to the Bond Ordinance; and provided further that the amount of revenues pledged pursuant to the Bond Ordinance shall never be less than the greater of: (i) 1.225% of the taxable gross receipts remitted to the City by the State as set forth above, or (ii) the maximum amount at any time provided hereafter to be remitted to the City under applicable law, and includes the distribution to the City made pursuant to Section 7-1-6.46 NMSA 1978, as that distribution relates to the gross receipts tax revenues received pursuant to Section 7-1-6.4 NMSA 1978, which revenues are reduced pursuant to the deductions under Sections 7-9-92 and 7-9-93 NMSA 1978; and provided further, the City intends that Section 3-31-6(C) NMSA 1978 applies expressly to the amount of revenues pledged pursuant to the Bond Ordinance (the term "Pledged Revenues" does not include any local option gross receipts tax income received by the City). The Bonds will be secured by an irrevocable and first lien (but not necessarily an exclusive first lien) on the Pledged Revenues. See "SECURITY FOR THE BONDS" herein. The Bonds are being issued by the City of Clovis, Curry County, New Mexico (the "City") to provide funds to (1) acquire, construct, reconstruct, resurface, maintain, repair, or otherwise improve municipal streets, including storm drainage and sanitary sewer projects directly related to a street project; and (2) pay expenses and costs of issuance related to the issuance of the Bonds. See "THE STREET IMPROVEMENT PROJECT" herein Pursuant to the Bond Ordinance, the City has covenanted not to repeal or amend any law, ordinance, or resolution in a manner that impairs any of the outstanding Bonds. *Preliminary, subject to change. Additional bonds may hereafter be issued and secured by the Pledged Revenues having a lien on the Pledged Revenues on a parity with, or subordinate and junior to, the lien on the Pledged Revenues securing the Bonds. Additional Obligations may not be issued with a lien superior to the lien on the Pledged Revenues securing the Bonds. See "ADDITIONAL OBLIGATIONS PAYABLE FROM PLEDGED STATE SHARED GROSS RECEIPTS TAX REVENUES -- Parity Obligations" herein. The descriptions and summaries of various documents hereinafter set forth do not purport to be comprehensive or definitive, and reference is made to each document for the complete details of all terms and conditions. All statements herein are qualified in their entirety by reference to each document. All capitalized terms used in this Official Statement and not otherwise defined herein have the same meanings as in the Bond Ordinance. THE STREET IMPROVEMENT PROJECT The proceeds of the Bonds will be used to (1) acquire, construct, reconstruct, resurface, maintain, repair, or otherwise improve municipal streets, including storm drainage and sanitary sewer projects directly related to a street project and (2) pay expenses and costs of issuance related to the issuance of the Bonds. See "SOURCES AND USES OF PROCEEDS OF THE BONDS" herein. SPECIAL FACTORS RELATING TO THE BONDS The purchase of the Bonds involves special risks and the Bonds may not be appropriate investments for all types of investors. Each prospective investor is encouraged to read this Official Statement in its entirety and to give particular attention to the factors described below, which, among other factors discussed herein, could affect the payment of debt service on the Bonds and could affect the market price of the Bonds to an extent that cannot be determined at this time. The Bonds may not be suitable investments for all persons, and prospective purchasers should evaluate the risks and merits of an investment in the Bonds, and should confer with their own legal and financial advisors before deciding to purchase the Bonds. Gross Receipts Tax Collections are Subject to Fluctuation Gross receipts tax collections are subject to the fluctuations in spending related, in part, to national and local economic conditions, which influence the amount of gross receipts taxes collected. This causes gross receipts tax revenues to increase along with the increasing prices brought about by inflation, but also causes collections to be vulnerable to adverse economic conditions and reduced spending. The City's economic base and the future collections of Pledged Revenues are directly affected by economic activities in the City. The City's retail sales are affected by general economic circumstances. The Pledged Revenues are based on the total gross receipts of the City. Various circumstances and developments, most of which are beyond the control of the City, may have an adverse effect on the future level of Pledged Revenues. Such circumstances may include, among others, adverse changes in national and local economic and financial conditions generally, reductions in the rates of employment and economic growth in the City, the State and the region, a decrease in rates of population growth and rates of residential and commercial development in the City, the County, the State and the region and various other factors. For the Fiscal Year ended June 30, 2012, total Pledged Revenues (unaudited) were $9,593,916, approximately 2% higher than for the previous fiscal year. 2 Bankruptcy and Foreclosure The ability and willingness of an owner or operator of a business to pay gross receipts taxes may be adversely affected by the filing of a bankruptcy proceeding by the owner. The ability to collect delinquent gross receipts taxes using foreclosure and sale for non-payment of taxes may be forestalled or delayed by bankruptcy, reorganization, insolvency or other similar proceedings affecting the owner or operator of a business. The Federal bankruptcy laws provide for an automatic stay of foreclosure and sale proceedings, thereby delaying such proceedings, perhaps for an extended period. Delays in the exercise of remedies could result in gross receipts tax collections that may be insufficient to pay debt service on Bonds when due. Limited Obligations The Bonds constitute a lien only on the Pledged Revenues. Therefore, the security for the punctual payment of the principal of and interest on the Bonds is dependent on the City's receipt of the Pledged Revenues in amounts sufficient to meet the debt service requirements of the Bonds. See "SECURITY FOR THE BONDS" and "PLEDGED REVENUES" herein. The Bonds and the interest thereon do not constitute a debt or indebtedness of the City within the meaning of any provision or limitation of the Constitution or laws of the State and do not give rise to a pecuniary liability of the City or a charge against its general credit or taxing power. Further, the Bonds are not obligations of the State, and the owners of the Bonds may not look to the State for payment of the principal of or interest on the Bonds. Additional Parity Obligations The City may issue additional Parity Obligations without Bondholder consent, upon meeting coverage or other financial tests. See "ADDITIONAL OBLIGATIONS PAYABLE FROM PLEDGED STATE SHARED GROSS RECEIPTS TAX REVENUES -- Parity Obligations" herein. Parity Obligations would have a lien on the Pledged Revenues on parity with the lien of the Bonds. As a result, if Pledged Revenues are insufficient to pay debt service on the Bonds and the Parity Obligations in any year, debt service will be paid on a proportionate basis. Secondary Market Although the Underwriter expects to maintain a secondary market in the Bonds, at this time no guarantee can be made that a secondary market for the Bonds will be maintained by the Underwriter or others. Owners of the Bonds should be prepared to hold their Bonds to maturity or prior redemption. State Legislation The State Legislature of the State of New Mexico (the "Legislature") may amend the laws relating to the levy, calculation and/or the distribution of or otherwise impacting the City’s gross receipts tax revenues. In some cases, the Legislature has made amendments which negatively impacted the amount of gross receipts tax revenues received by local government. In 2004, the Legislature adopted legislation creating a deduction from gross receipts tax for receipts from retail sales of food (not including restaurant sales and certain sales of prepared foods) as defined for federal food stamp program purposes. Retailers are required to report receipts from sales of such groceries and then claim the deduction. The statute provides for payments to be made from the State general fund to reimburse local governments for revenues lost as a result of the new deduction. Those distributions are included within Pledged Revenues. In addition, in 2004 the Legislature created a deduction from gross receipts tax for receipts of licensed 3 medical care providers from Medicare Part C and managed health plans that by contract do not reimburse providers for gross receipts tax. This legislation includes provision for payments from the State general fund to reimburse local governments for revenues lost as a result of this deduction. Those distributions are included within Pledged Revenues. Other amendments to State laws affecting taxed activities and distribution of gross receipts tax revenues have been proposed from time to time and could be proposed in the future by the Legislature. There is no assurance that any future amendments will not adversely affect activities now subject to the gross receipts tax or distribution of gross receipts tax revenues to the City. Notwithstanding the foregoing, the provisions of State law authorizing the issuance of revenue bonds (including gross receipts tax bonds such as the Bonds) include a provision stating that any law which authorizes the pledge of revenues to the payment of revenue bonds, or which affects the pledged revenue "shall not be repealed or amended or otherwise directly or indirectly modified in such a manner as to impair adversely any such outstanding revenue bonds." City Cannot Increase Distribution of Taxes The City has no control over the rate at which the Pledged Revenues are distributed to the City; the rate of distribution can be increased only by action of the Legislature. Although it is possible that the Legislature will increase the rate of distribution to the City, there is currently no legislation proposed or pending to increase the rate of distribution to the City. Bond Ratings There is no assurance that the ratings assigned to the Bonds will not be lowered or withdrawn at any time, the effect of which could adversely affect the market price or the marketability of the Bonds. See the information herein under the caption "RATINGS." DESCRIPTION OF THE BONDS General The Bonds are being issued in the aggregate principal amount of $9,000,000* in order to provide funds for the Street Improvement Project. See "PURPOSE AND PLAN OF FINANCING" herein. The Bonds will be dated the date of delivery. The Bonds will bear interest from their dated date at the rates, and will mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. Interest on the Bonds will be payable semi-annually on June 1 and December 1 of each year, commencing June 1, 2013. The Bonds will bear interest from the most recent interest payment date to which interest has been fully paid or duly provided for or, if no interest has been paid, from the date of issuance. The Bonds will be issued as fully registered bonds without coupons in denominations of $5,000 or any integral multiple thereof. *Preliminary, subject to change. 4 Payment - Regular Record Date The principal of and any prior redemption premium applicable to any Bond shall be payable to the Owner thereof as shown on the registration books kept by the Registrar (which is appointed as registrar and transfer agent for the Bonds), upon maturity or prior redemption thereof and upon presentation and surrender at office of the Paying Agent (which is appointed as paying agent for the Bonds). If any Bond shall not be paid upon such presentation and surrender at or after maturity or on a designated prior redemption date on which the City may have exercised its right to prior redeem any Bond pursuant to the Bond Ordinance, it shall continue to draw interest at the rate borne by the Bond until the principal thereof is paid in full. Payment of interest on any Bond shall be made to the registered owner thereof as of the Regular Record Date by check or draft mailed by the Paying Agent, on or before each interest payment date (or, if such interest payment date is not a business day, on or before the next succeeding business day without accruing any additional interest), to the Owner thereof on the Regular Record Date at such Owner’s address as it last appears on the registration books kept by the Registrar on the Regular Record Date (or by such other arrangement as may be mutually agreed to by the Paying Agent and any registered owner on such Regular Record Date). All such payments shall be made in lawful money of the United States of America. The person in whose name any Bond is registered at the close of business on any Regular Record Date with respect to any interest payment date shall be entitled to receive the interest payable thereon on such interest payment date notwithstanding any transfer or exchange thereof subsequent to such Regular Record Date and prior to such interest payment date; but any such interest not so timely paid or duly provided for shall cease to be payable as provided above and shall be payable to the person in whose name any Bond is registered at the close of business on a Special Record Date fixed by the Paying Agent for the payment of any such defaulted interest. Such Special Record Date shall be fixed by the Paying Agent whenever moneys become available for defaulted interest, and notice of any such Special Record Date shall be given not less than ten days prior thereto, by first-class mail, to the Owners of the Bonds as of a date selected by the Paying Agent, stating the Special Record Date and the date fixed for the payment of such defaulted interest. Optional Redemption The Bonds maturing on or after June 1, 2023 are subject to prior redemption at the City's option in one or more units of principal of $5,000 on and after June 1, 2022 in whole or in part at any time, in such order of maturities as the City may determine (and by lot if less than all Bonds of such maturity is called, such selection by lot to be made by the Registrar in such manner as considered appropriate and fair) for the principal amount of each $5,000 unit of principal so redeemed plus accrued interest to the redemption date. Redemption shall be made upon prior notice mailed to each registered owner of each Bond selected for redemption as shown on the registration books kept by the Registrar in the manner and upon the conditions provided in the Bond Ordinance. Redemption Procedures Notice of redemption shall be given by the Registrar by sending a copy of such notice in the manner required by the Depository or by first-class, postage prepaid mail at least thirty (30) days prior to the redemption date to the registered owner of each Bond, or portion thereof, to be redeemed at the address shown as of the close of business of the Registrar on the fifth day prior to the mailing of notice on the registration books kept by the Registrar. The City shall give notice of optional redemption of the Bonds to the Registrar at least forty-five (45) days prior to the redemption date (unless such deadline is waived by the Registrar). The Registrar's failure to give such notice to the registered owner of any Bond, or any defect therein, shall not affect the validity of the proceedings for the redemption of any Bonds for which proper notice was given. Notices of redemption shall specify the maturity dates and the number or numbers of the Bonds to be redeemed (if less than all are to be redeemed) and if less than the full amount of any Bond is to 5 be redeemed, the amount of such Bond to be redeemed, the date fixed for redemption, and that on such redemption date there will become and be due and payable upon each Bond to be redeemed at the office of the Paying Agent the principal amount to be redeemed plus accrued interest to the redemption date and that from and after such date interest will cease to accrue on such amount. Notice having been given in the manner hereinbefore provided, the Bond or Bonds so called for redemption shall become due and payable on the redemption date so designated and if an amount of money sufficient to redeem all Bonds called for redemption shall on the redemption date be on deposit with the Paying Agent, the Bonds to be redeemed shall be deemed not outstanding and shall cease to bear interest from and after such redemption date. Upon presentation of the Bonds to be redeemed at the office of the Paying Agent, the Paying Agent will pay the Bond or Bonds so called for redemption with funds deposited with the Paying Agent by the City. Conditional Redemption If money or Federal Securities sufficient to pay the optional redemption price of the Bonds to be called for optional redemption are not on deposit with the Paying Agent prior to the giving of notice of optional redemption pursuant to paragraph (c) of this Section, such notice shall state such Bonds will be redeemed in whole or in part on the optional redemption date in a principal amount equal to that part of the optional redemption price received by the Paying Agent by 2:00 p.m. on the applicable optional redemption date. If the full amount of the optional redemption price is not received as set forth in the preceding sentence, the notice shall be effective only for those Bonds for which the optional redemption price is on deposit with the Paying Agent. If all Bonds called for optional redemption cannot be redeemed, the Bonds to be redeemed shall be selected in a manner deemed reasonable and fair by the City and the Registrar shall give notice, in the manner in which the original notice of optional redemption was given, that such money was not received. In that event, the Registrar shall promptly return to the Owners thereof the Bonds or certificates which it has received evidencing the part thereof which have not been redeemed. Registration, Transfer and Exchange of Bonds Books for the registration and transfer of the Bonds shall be kept by the Registrar. Upon the surrender for transfer of any Bonds at the office of the Registrar, duly endorsed for transfer or accompanied by an assignment duly executed by the Owner or his attorney duly authorized in writing, the Registrar shall authenticate and deliver in the name of the transferee or transferees a new Bond or Bonds of a like aggregate principal amount and of the same maturity, bearing a number or numbers not contemporaneously outstanding. Bonds may be exchanged at office of the Registrar for an equal aggregate principal amount of Bonds of the same maturity of other authorized denominations. The Registrar shall authenticate and deliver a Bond or Bonds that the Owner making the exchange is entitled to receive, bearing a number or numbers not contemporaneously outstanding. Exchanges and transfers of Bonds as herein provided shall be without charge to the Owner or any transferee, but the Registrar may require the payment by the Owner of any Bond requesting exchange or transfer of any tax or other governmental charge required to be paid with respect to such exchange or transfer. The Registrar shall not be required: (i) to transfer or exchange all or a portion of any Bond subject to prior redemption during the period of 15 days next preceding the mailing of notice to the Owners calling any Bonds for prior redemption pursuant to Section 7; or (ii) to transfer or exchange all or a portion of a Bond after the mailing to registered owners of notice calling such Bond or portion thereof for prior redemption. The person in whose name any Bond shall be registered on the registration books kept by the Registrar shall be deemed and regarded as the absolute owner thereof for the purpose of making payment thereof and for all other purposes except as may otherwise be provided with respect to payment of interest as is provided in Section 6(B), and payment of or on account of either principal or interest on any Bond shall be made only to or upon the written order of the Owner thereof or the Owner’s legal representative, but such 6 registration may be changed upon transfer of such Bond in the manner and subject to the conditions and limitations provided herein. All such payments shall be valid and effectual to discharge the liability upon such Bond to the extent of the sum or sums so paid. If any Bond is lost, stolen, destroyed or mutilated, the Registrar shall, upon receipt of such evidence, information or indemnity relating thereto as it may reasonably require, authenticate and deliver a replacement Bond or Bonds of a like aggregate principal amount and of the same maturity, bearing a number or numbers not contemporaneously outstanding. If such lost, stolen, destroyed or mutilated Bond has matured, the Paying Agent may pay such Bond in lieu of replacement. Book-Entry Only Introduction Unless otherwise noted, the information contained under the caption "General" below has been provided by DTC. The City makes no representations as to the accuracy or the completeness of such information. The Beneficial Owners of the Bonds should confirm the following information with DTC, the Direct Participants or the Indirect Participants. NEITHER THE CITY NOR THE PAYING AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO DIRECT PARTICIPANTS, TO INDIRECT PARTICIPANTS, OR TO ANY BENEFICIAL OWNER WITH RESPECT TO (A) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DIRECT PARTICIPANT, OR ANY INDIRECT PARTICIPANT; (B) ANY NOTICE THAT IS PERMITTED OR REQUIRED TO BE GIVEN TO THE OWNERS OF THE BONDS UNDER THE BOND ORDINANCE, (C) THE SELECTION BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS; (D) THE PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OR INTEREST DUE TO THE OWNER OF THE BONDS; (E) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS THE OWNERS OF BONDS; OR (F) ANY OTHER MATTER REGARDING DTC. General The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Bond certificate will be issued for the Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. DTC, the world's largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing 7 Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to Direct Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org. The City undertakes no responsibility for and makes no representations as to the accuracy or the completeness of the content of such material contained on that website as described in the preceding sentence including, but not limited to, updates of such information or links to other Internet sites accessed through the aforementioned website. Purchases of the Bonds under the DTC system must be made by or through Direct or Indirect Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not affect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. While the Bonds are in the book-entry only system, redemption notices will be sent to DTC. If less than all of the Bonds are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts, upon DTC's receipt of funds and corresponding detail information from the City or agent on payable date in accordance with their respective holdings shown on DTC's records. 8 Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the City. Under such circumstances, in the event that a successor depository is not obtained, certificates representing the Bonds are required to be printed and delivered. The City may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, certificates representing the Bonds will be printed and delivered to DTC. This information concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable, but neither the City nor the Underwriter takes any responsibility for the accuracy thereof. Source of Payment The Bonds are payable and collectible solely from an irrevocable and first lien (but not necessarily an exclusive first lien) on the Pledged Revenues. "Pledged Revenues" means the revenues from the State gross receipts tax derived pursuant to Section 7-9-4 NMSA 1978, imposed on persons engaging in business in the State, which revenues are remitted to the City monthly by the New Mexico Department of Taxation and Revenue pursuant to Section 7-1-6 and 7-1-6.4 NMSA 1978, and which remittances currently equal one and two hundred twenty-five thousandths percent (1.225%) of the taxable gross receipts reported for the City for the month for which such remittances is made; provided that if a greater amount of such gross receipts tax revenues are hereafter provided to be remitted to the City under applicable law, such additional amounts shall be included as revenues pledged pursuant to the Bond Ordinance; and provided further that the amount of revenues pledged pursuant to the Bond Ordinance shall never be less than the greater of: (i) 1.225% of the taxable gross receipts remitted to the City by the State as set forth above, or (ii) the maximum amount at any time provided hereafter to be remitted to the City under applicable law, and includes the distribution to the City made pursuant to Section 7-1-6.46 NMSA 1978, as that distribution relates to the gross receipts tax revenues received pursuant to Section 7-1-6.4 NMSA 1978, which revenues are reduced pursuant to the deductions under Sections 7-9-92 and 7-9-93 NMSA 1978; and provided further, the City intends that Section 3-31-6(C) NMSA 1978 applies expressly to the amount of revenues pledged pursuant to the Bond Ordinance (the term "Pledged Revenues" does not include any local option gross receipts tax income received by the City). All of the Bonds, together with the interest accruing thereon, shall be payable and collectible solely out of Pledged Revenues, which are irrevocably so pledged by the applicable Bond Ordinance. The registered owner or owners of the Bonds may not look to any general or other fund for the payment of the principal of or interest on such obligations, except the designated special funds pledged therefor. The Bonds shall not constitute an indebtedness or a debt within the meaning of any constitutional or statutory provision or limitation; nor shall they be considered or held to be general obligations of the City. 9 Funds and Accounts The Bond Ordinance creates or continues the following funds and accounts for the Bonds: an Acquisition Account, a State Shared Gross Receipts Tax Income Fund, a Series 2012 Bond Fund, and a Series 2012 Reserve Fund; Disposition of Bond Proceeds The proceeds from the sale of the Bonds shall be applied by the City simultaneously with the delivery of the Bonds to the Purchaser in the following manner and priority: Expenses. An amount necessary, together with other legally available funds of the City, shall be used to pay costs of issuance of the Bonds. Acquisition Account. All remaining proceeds derived from the sale of the Bonds shall be deposited promptly upon the receipt thereof in the Acquisition Account. Until the Completion Date, the money in the Acquisition Account shall be used and paid out solely for the purpose of the Street Improvement Project in compliance with applicable law. Series 2012 Reserve Fund. No deposit of proceeds of the Bonds or other City moneys into the Series 2012 Reserve Fund shall be required on the date of issuance of the Bonds or at any time thereafter, except in the circumstances and on the conditions described in the Bond Ordinance. Street Improvement Project Completion. As soon as practicable, after the completion of the Street Improvement Project, and in any event not more than 60 days after the completion of the Street Improvement Project, any balance remaining in the Acquisition Account (other than any amount retained by the City for any Street Improvement Project costs not then due and payable) shall be transferred from the Acquisition Account and deposited in the Series 2012 Bond Fund and used by the City to pay principal and interest on the Bonds as same become due. Deposit of Pledged Revenues and Flow of Funds. A. The Bonds and Pledged Revenues. (1) State Shared Gross Receipts Tax Income Fund. So long as any of the Bonds are outstanding either as to principal or interest, or both, the City shall credit all Pledged Revenues to the State Shared Gross Receipts Tax Income Fund. The following payments shall be made from the State Shared Gross Receipts Tax Income Fund. (2) Series 2012 Bond Fund. As a first charge on the State-Shared Gross Receipts Tax Income Fund, the following amounts shall be withdrawn from the State-Shared Gross Receipts Tax Income Fund and shall be credited to the Series 2012 Bond Fund: (a) Monthly, commencing on the first day of the month immediately succeeding the delivery of the Bonds, an amount in equal monthly installments necessary, together with any other moneys therein and available therefor, to pay the next maturing installment of interest on the Bonds, and monthly thereafter, commencing on each Interest Payment Date, one-sixth (1/6th) of the amount necessary to pay the next maturing installment of interest on the Bonds then outstanding. (b) Monthly, commencing on the first day of the month immediately succeeding the delivery of the Bonds, an amount in equal monthly installments necessary, together with any other moneys 10 therein and available therefor, to pay the next maturing installment of principal of the outstanding Bonds and monthly thereafter, commencing on each principal payment date, one twelfth (1/12th) of the amount necessary to pay the next maturing installment of principal on the Bonds then outstanding. (3) Credit. In making the deposits required to be made into the Series 2012 Bond Fund, if there are any amounts then on deposit in the Series 2012 Bond Fund available for the purpose for which such deposit is to be made, the amount of the deposit to be made pursuant to paragraph (2) above shall be reduced by the amount available in such fund for such purpose. (4) Transfer of Money out of Series 2012 Bond Fund. Each payment of principal and interest becoming due on the Bonds shall be transferred from the Series 2012 Bond Fund to the Paying Agent on or before two Business Days prior to the due date of such payment. (5) Series 2012 Reserve Fund. The Treasurer (or successor) of the City, on or before the 150th day after the close of each Fiscal Year, shall deliver a certificate stating the ratio of coverage of Pledged Revenues to the combined maximum annual principal and interest coming due in any subsequent Fiscal Year on the outstanding Bonds and other Parity Obligations (the "Debt Service Coverage Ratio"); and if such certificate indicates that the Pledged Revenues for such Fiscal Year are less than 2.0 times the maximum annual principal and interest requirements in any subsequent Fiscal Year on the Bonds and any Parity Obligations then outstanding, or if there occurs an event of default under the Ordinance as to any principal or interest payment obligation, the City shall immediately proceed to accumulate the Reserve Requirement in the Series 2012 Reserve Fund by 12 substantially equal monthly deposits made on the first day of each month commencing on the first day of the first month concurrently following such determination and such accumulations shall be made from the Pledged Revenues, second to the payments required by paragraph 2 of this Section and concurrently with the payment (if any) into the reserve fund for other Parity Obligations. After the funding of the Series 2012 Reserve Fund as aforesaid, if such certificates for two consecutive Fiscal Years indicate that the Debt Service Coverage Ratio for two consecutive Fiscal Years is at least 2.0 of the maximum annual principal and interest coming due in any subsequent Fiscal Year on the outstanding Bonds and other Parity Obligations, any money or securities in the Series 2012 Reserve Fund may be transferred to other City funds or accounts, and the procedure provided in the first sentence of this paragraph 5 shall be reinstated. The amounts in the Series 2012 Reserve Fund are pledged exclusively as additional security for payment of the principal of and interest on the Bonds and this Ordinance creates a lien thereon. After accumulation of the Reserve Requirement, second to the payments required by paragraph 2 hereof, there shall be credited monthly to the Series 2012 Reserve Fund from the Income Fund, such amount or amounts, if any, as are necessary to maintain the Series 2012 Reserve Fund as a continuing reserve in an amount not less than the Reserve Requirement to meet possible deficiencies in the Series 2012 Bond Fund. The moneys (if any) in the Series 2012 Reserve Fund shall be accumulated and maintained as a continuing reserve to be used, except as hereinafter provided in paragraphs 6 and 8 of this Section, only to prevent deficiencies in the payment of the principal of and interest on the Bonds resulting from the failure to credit to the Series 2012 Bond Fund sufficient funds to pay the principal and interest as the same become due. Amounts (if any) in the Series 2012 Reserve Fund in excess of the Reserve Requirement shall be withdrawn from the Series 2012 Reserve Fund and deposited into the Series 2012 Bond Fund (including investment income therefrom) and shall be used to pay the principal of or interest on the Bonds or any obligations refunding the Bonds. Also, second to the payments required by paragraph 2 of this Section and coequal and on a parity with payments into the Series 2012 Reserve Fund, there may be credited on a periodic basis of not more frequently than monthly, an amount necessary to establish, maintain or reestablish reasonable reserve funds for additional Parity Obligations or necessary to reimburse a credit facility provider for amounts due in connection with a draw on any debt service reserve surety bond or similar credit facility for any such additional Parity Obligations. (6) Defraying Delinquencies in the Series 2012 Bond Fund and Series 2012 Reserve Fund. If, in any month, the City shall, for any reason, fail to pay into the Series 2012 Bond Fund the full 11 amount required, then an amount shall be paid into the Series 2012 Bond Fund on such date from the Series 2012 Reserve Fund (if moneys are then on deposit in the Series 2012 Reserve Fund) equal to the difference between the amount paid from the Pledged Revenues and the full amount so stipulated. If the moneys paid into the Series 2012 Bond Fund from the Series 2012 Reserve Fund are not equal to the amount required to be paid into the Series 2012 Bond Fund on such date, then in the following month, an amount equal to the difference between the amount paid and the amount required shall be deposited into the Series 2012 Bond Fund, from the first Pledged Revenues thereafter received and not required to be otherwise applied. The money deposited in the Series 2012 Bond Fund from the Series 2012 Reserve Fund, if any, shall be replaced in the Series 2012 Reserve Fund from the first Pledged Revenues thereafter received and not required to be otherwise applied. If, in any month, the City shall, for any reason, fail to pay into the Series 2012 Reserve Fund the full amount required, the difference between the amount paid and the amount so stipulated shall in a like manner be paid therein from the first Pledged Revenues thereafter received and not required to be otherwise applied. The moneys in the Series 2012 Reserve Fund shall be used solely and only for the purpose of paying any deficiencies in the payment of the principal of and the interest on the Bonds; provided, however, that any moneys at any time in excess of the Reserve Requirement in the Series 2012 Reserve Fund may be withdrawn therefrom and applied to any other lawful purpose. (7) Payment of Parity Obligations. Concurrently with the payment of the Pledged Revenues required by paragraphs (2) and (6) of this Section, any amounts on deposit in the State-Shared Gross Receipts Tax Income Fund shall be used by the City for the payment of principal of, interest on and debt service reserve fund deposits relating to Parity Obligations, payable from the Pledged Revenues, as the same accrue. If funds on deposit in the State-Shared Gross Receipts Tax Income Fund are not sufficient to pay when due the required payments of principal of, interest on and debt service reserve fund deposits relating to the Bonds and any other outstanding Parity Obligations, then the available and applicable funds in the State-Shared Gross Receipts Tax Income Fund will be used, first, on a pro rata basis, based on the amount of principal and interest then due with respect to each series of outstanding Parity Obligations, for the payment of principal of and interest on all series of outstanding Parity Obligations and, second, to the extent of remaining available funds in the State-Shared Gross Receipts Tax Income Fund, on a pro rata basis, based on the amount of debt service reserve fund deposits then required with respect to each series of outstanding Parity Obligations, for the required debt service reserve fund deposits for all series of outstanding Parity Obligations. (8) Termination Upon Deposits to Maturity. No payment shall be made into the Series 2012 Bond Fund or the Series 2012 Reserve Fund if the amount in such fund totals a sum at least equal to the entire aggregate amount due as to principal, premium, if any, and interest, on the Bonds to their respective maturities or applicable redemption dates, in which case moneys in the Series 2012 Bond Fund in an amount at least equal to such respective principal and interest requirements shall be used solely to pay such obligations as the same accrue, and any moneys in excess thereof in the Series 2012 Bond Fund may be used as provided below. (9) Payment for Subordinate Obligations. Subsequent to the payments required by paragraphs (2), (5), and (6) of this Section, any balance remaining in the State-Shared Gross Receipts Tax Income Fund, after making the payments hereinabove provided, shall be used by the City for the payment of interest on and the principal of additional obligations, if any, hereafter authorized to be issued and payable from the Pledged Revenues with a lien on the Pledged Revenues junior or subordinate to the lien thereon of the Bonds (provided that such payments may be made at any intervals as may be provided in the ordinance or resolution authorizing such additional obligations). (10) Payment from Other Sources. Notwithstanding any other provisions of this Ordinance, the City may, in its sole discretion, choose to apply other legally available funds, such as its .25% municipal gross receipts tax, to the payment of the Bonds. 12 (11) Surplus Revenues. After making all the payments hereinabove required to be made by this Section, the remaining Pledged Revenues, if any, may be applied to any other lawful purpose, as the City may from time to time determine. General Administration of Funds The funds designated above shall be administered and invested as follows: A. Places and Times of Deposits. The funds shall be separately maintained as a trust fund or funds for the purposes established and shall be deposited in one or more bank accounts in an Insured Bank or Banks. Each fund or account shall be continuously secured to the extent required by law and shall be irrevocable and not withdrawable by anyone for any purpose other than the designated purpose. Payments shall be made into the proper fund or account on the first day of the month except when the first day shall not be a Business Day, then payment shall be made on the next succeeding Business Day. No later than two Business Days prior to each Interest Payment Date, moneys sufficient to pay interest and principal then due on the Bonds shall be transferred to the Paying Agent. Nothing in the Bond Ordinance shall prevent the City from establishing one or more bank accounts in an Insured Bank or Banks for all the funds required by the Bond Ordinance or shall prevent the combination of such funds and accounts with any other bank account or accounts or investments for other funds and accounts of the City. Default, Remedies and City Duties Each of the following events is declared in the Bond Ordinance to be an "event of default": (a) Nonpayment of Principal. Any payment of the principal of any of the Bonds is not made when due and payable, either at maturity, by proceedings for prior redemption, or otherwise. (b) Nonpayment of Interest. Any payment of any installment of interest on the Bonds is not made when the same becomes due and payable or within 30 days thereafter. (c) Default of any Provision. Any failure by the City to observe or perform any covenant, condition or agreement on its part to be observed or performed (other than as referred to in Section 28(A) or Section 28(B)), which failure continues for a period of 60 days after written notice specifying the failure and requesting that it be remedied has been given to the City by the Owners of 25% in principal amount of the Bonds then Outstanding. (d) Bankruptcy or Insolvency of City. (1) The City shall (a) apply for or consent to the appointment of or the taking of possession by, a receiver, custodian, trustee, liquidator or the like of the City or of all or a substantial part of its property, (b) commence a voluntary case under the Federal Bankruptcy Code, or (c) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, or reorganization or (2) a proceeding or case shall be commenced, without application or consent of the City, in any court of competent jurisdiction seeking (a) the liquidation, reorganization, dissolution, winding-up or adjustment of debts of the City, (b) appointment of a trustee, receiver, custodian, liquidator or the like of the City or of all or a substantial part of its assets, or (c) similar relief in respect of the City under any law relating to bankruptcy, insolvency, reorganization, winding-up or adjustment of debts. Upon the occurrence and during the continuance of any Event of Default, the Owners of not less than 25% in principal amount of the Bonds then Outstanding, including but not limited to a trustee or trustees therefor, may proceed against the City, the Commission, and its agents, officers and employees to protect and enforce the rights of any Owner under the Ordinance by mandamus or other suit, action or special 13 proceedings in equity or at law, in any court of competent jurisdiction, either for specific performance of any covenant or agreement contained herein or in an award or execution of any power herein granted for the enforcement of any power, legal or equitable remedy as such Owners may deem most effectual to protect and enforce the rights aforesaid, or thereby to enjoin any act or thing which may be unlawful or in violation of any right of any registered owner, or to require the Commission to act as if it were the trustee of an express trust, or any combination of such remedies. All such proceedings at law or in equity shall be instituted, had and maintained for the equal benefit of all Owners of the Bonds then Outstanding. The failure of any Owner so to proceed shall not relieve the City or any of its officers, agents or employees of any liability for failure to perform any duty. Each right or privilege or any Owner (or trustee thereof) is in addition and cumulative to any other right or privilege, and the exercise of any right or privilege by or on behalf of any Owner shall not be deemed a waiver of any other right or privilege thereof. Upon the occurrence and during the continuance of any Event of Default, the City shall do and perform all proper acts on behalf of and for the Owners to protect and preserve the security created for the payment of the principal of and interest on the Bonds promptly as the same become due. In the event the City fails or refuses to proceed as provided in the Bond Ordinance, the registered Owners of not less than 25% in principal amount of the Bonds then Outstanding, after demand in writing, may proceed to protect and enforce the rights of the Owners as provided in the Bond Ordinance. Defeasance When all principal, any applicable prior redemption premium, and interest in connection with the Bonds have been duly paid, the pledge and lien and all obligations hereunder shall thereby be discharged and the Bonds shall no longer be deemed to be Outstanding within the meaning of the Bond Ordinance. There shall be deemed to be such due payment as to any Bond when the Commission has placed in escrow and in trust with a commercial bank located within or without the State and exercising trust powers, an amount sufficient (including the known minimum yield from Federal Securities in which such amount may initially be invested) to meet all requirements of principal, interest and any applicable prior redemption premium as the same become due to its maturity or designated redemption date as of which the City shall have exercised or obligated itself to exercise its option to call such Bond. The Federal Securities shall become due prior to the respective times on which the proceeds thereof shall be needed, in accordance with a schedule established and agreed upon between the Commission and such bank at the time of the creation of the escrow or the Federal Securities shall be subject to the redemption at the option of the holders thereof to assure such availability as so needed to meet such schedule. Federal Securities within the meaning of this section shall include only direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America and which are not callable prior to maturity by the issuer of such obligations. Amendment The Bond Ordinance may be amended by an amendatory or supplemental ordinance or resolution without the consent of the holder of any Bond to cure any ambiguity, or to cure, correct or supplement any defect or inconsistent provision contained therein, to add to the covenants and agreements in the Bond Ordinance for the protection or benefit of the Owners, to subject to the Bond Ordinance additional revenues, properties or collateral, to comply with the provisions of the Code, or to comply with any rule or regulation of the Securities and Exchange Commission relating to the Bonds. Except as provided above, the Bond Ordinance may be amended or supplemented by ordinance or resolution adopted by the Commission in accordance with the laws of the State, without receipt by the City of any additional consideration but with the written consent of the Owners of 75% of the Bonds Outstanding at the time of the adoption of such amendatory or supplemental ordinance or resolution; provided, however, that no such ordinance (without the consent of the registered owners of all of the Bonds authorized by the Bond Ordinance and outstanding at the 14 time of adoption of such amendatory or supplemental ordinance or resolution) shall have the effect of permitting: (a) An extension of the maturity of any Bond; or (b) A reduction in the principal amount of any Bond, the rate of interest thereon or the prior redemption premium due in connection therewith; or (c) The creation of a lien upon or pledge of Pledged Revenues ranking prior to the lien or pledge created by the Bond Ordinance; or (d) A reduction of the principal amount of Bonds required for consent to such amendatory or supplemental ordinance; or (e) The establishment of priorities as between Bonds issued and outstanding under the provisions of the Bond Ordinance; or (f) The modification of or otherwise affecting the rights of the registered owners of less than all of the Bonds then outstanding. Notwithstanding the foregoing, prior to the issuance of the Bonds, the Bond Ordinance may be amended by resolution of the City Commission to cure, correct or supplement any defect or inconsistent provision contained therein. SECURITY FOR THE BONDS Pledge and Security Subject to the uses permitted by, and the priorities set forth in the Bond Ordinance, the City will pledge and grant a security interest in the Pledged Revenues and the amounts and securities on deposit in the Series 2012 Bond Fund and the Series 2012 Reserve Fund and the proceeds thereof, for the payment of principal of and interest on the Bonds. The Bonds constitute an irrevocable and first lien, but not necessarily an exclusive first lien, on the Pledged Revenues, as set forth in the Bond Ordinance. Special Limited Obligations All of the Bonds and all payments of principal, premium, if any, and interest thereon whether at maturity or on a redemption date, together with any interest accruing thereon, shall be special limited obligations of the City and shall be payable and collectible solely from the Pledged Revenues. The owner or owners of the Bonds may not look to any general or other fund for the payment of the principal of or interest on such obligations, except the designated special funds pledged therefor. The Bonds shall not constitute a indebtedness or a debt of the City within the meaning of any constitutional, charter or statutory provision or limitation, nor shall they be considered or held to be general obligations of the City. Each of the Bonds shall recite that it is payable and collectible solely out of the Pledged Revenues as set forth in the Bond Ordinance, and that the holders thereof may not look to any general or other municipal fund for the payment of the principal of and interest on the Bonds. Nothing herein shall prevent the City from applying other funds of the City legally available therefor to the payment of the Bonds, in its sole discretion. 15 PURPOSE AND PLAN OF FINANCING Purpose The net proceeds received by the City from the sale of the Bonds, together with other available funds of the City, will be used to provide funds for the construction of Street Improvements. See "THE STREET IMPROVEMENT PROJECT" herein. Sources and Uses of Funds The sources and uses for the Bonds are as follows: Sources of Funds Par Amount of Bonds $_____________ Premium $_____________ TOTAL SOURCES $_____________ Uses of Funds Deposit to Acquisition Account $_____________ Costs of Issuance for Bonds(1) $_____________ TOTAL USES $_____________ (1) Includes financial advisor fees, legal fees and other miscellaneous costs and contingencies. ANNUAL DEBT SERVICE SUMMARY The following table sets forth for each fiscal year from 2013 through 2027 the amounts required in each such fiscal year to pay scheduled annual debt service on the Bonds and outstanding Parity Obligations, as well as the debt service coverage ratio, based on fiscal year 2012 Pledged Revenues. 16 Series 2012 Bonds Debt Service/Coverage* Year Ending June 30 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 (1) (2) Debt Service on Outstanding Parity Obligations $ 1,212,106 1,210,764 1,209,041 1,211,930 1,219,020 1,217,356 1,216,128 1,218,235 1,216,428 1,217,961 1,222,807 1,226,372 1,229,396 969,876 975,803 980,253 982,247 984,766 469,637 Estimated Debt Service on Bonds* $ 1,496,250 1,495,900 1,498,025 623,575 608,175 592,775 577,375 561,975 546,575 531,175 515,775 500,375 484,975 469,575 419,175 Total Debt Service* 2,708,356 2,706,664 2,707,066 1,835,505 1,827,195 1,810,131 1,793,503 1,780,210 1,763,003 1,749,136 1,738,582 1,726,747 1,714,371 1,439,451 1,394,978 980,253 982,247 984,766 469,637 Estimated Pledged Revenues (1) $ 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 9,593,916 Debt Service Coverage(2) 3.54 3.54 3.54 5.23 5.25 5.30 5.35 5.39 5.44 5.48 5.52 5.56 5.60 6.66 6.88 9.79 9.77 9.74 20.43 Future estimated Pledged Revenues are based on fiscal year 2012 collections provided by the City. There is no assurance that Pledged Revenues received in the future will equal the Pledged Revenues used in coverage computations. See “PLEDGED REVENUES” herein. Coverage calculations are based solely on Pledged Revenues pledged to payment of the Bonds and outstanding Parity Obligations. *Preliminary, subject to change. 17 PLEDGED REVENUES The Bonds are special obligations of the City, payable from the Pledged Revenues. Pledged Revenues means the revenues from the State gross receipts tax derived pursuant to Section 7-9-4 NMSA 1978, imposed on persons engaging in business in the State, which revenues are remitted to the City monthly by the New Mexico Department of Taxation and Revenue pursuant to Section 7-1-6 and 7-1-6.4 NMSA 1978, and which remittances currently equal one and two hundred twenty-five thousandths percent (1.225%) of the taxable gross receipts reported for the City for the month for which such remittances is made; provided that if a greater amount of such gross receipts tax revenues are hereafter provided to be remitted to the City under applicable law, such additional amounts shall be included as revenues pledged pursuant to the Bond Ordinance; and provided further that the amount of revenues pledged pursuant to the Bond Ordinance shall never be less than the greater of: (i) 1.225% of the taxable gross receipts remitted to the City by the State as set forth above, or (ii) the maximum amount at any time provided hereafter to be remitted to the City under applicable law, and includes the distribution to the City made pursuant to Section 7-1-6.46 NMSA 1978, as that distribution relates to the gross receipts tax revenues received pursuant to Section 7-1-6.4 NMSA 1978, which revenues are reduced pursuant to the deductions under Sections 7-9-92 and 7-9-93 NMSA 1978; and provided further, the City intends that Section 3-31-6(C) NMSA 1978 applies expressly to the amount of revenues pledged pursuant to the Bond Ordinance (the term "Pledged Revenues" does not include any local option gross receipts tax income received by the City). Taxed Activities. For the privilege of engaging in business in the State of New Mexico, the Gross Receipts Tax is imposed upon any person engaging in business in the State. "Gross Receipts" is defined in the Gross Receipts and Compensating Tax Act as the total amount of money or value or other consideration received from selling property in the State of New Mexico (including tangible personal property handled on consignment in the State), from leasing property employed in the State of New Mexico, from performing services in the State of New Mexico and from selling services outside New Mexico, the product of which is initially used in New Mexico. The definition excludes cash discounts allowed and taken, the Gross Receipts Tax payable on transactions for the reporting period and any county sales tax, county fire protection excise tax, county and municipal gross receipts taxes, any time or time-price differential and certain gross receipts or sales taxes imposed by an Indian tribe or pueblo. Unlike most other states, the State taxes sales of services, including legal services and certain medical services. Legislative Changes. Revisions to laws of the State affecting taxed activities and distributions of gross receipts tax revenues could be adopted in the future by the State Legislature. Proposals affecting taxed activities and distributions are frequently considered by the State Legislature. There is no assurance that any future revisions to State laws will not adversely affect activities now subject to the gross receipts tax or distribution of gross receipts tax revenues to the City. See "SPECIAL FACTORS RELATING TO THE BONDS -State Legislation" herein. Exemptions. Some activities and industries are exempt from the Gross Receipts Tax, many by virtue of their taxation under other laws. Exemptions include, but are not limited to, certain receipts of governmental agencies and certain organizations, receipts from the sale of vehicles, occasional sales of property or services, wages, certain agricultural products, dividends, and interest and receipts from the sale of or leasing of natural gas, oil or mineral interests. Various deductions are allowed including but not limited to receipts from various types of sales and leases of tangible personal property or services, receipts from sales to governmental agencies or certain organizations, receipts from processing certain agricultural products, receipts from certain publication sales, certain receipts from interstate commerce transactions, receipts from retail sales of food (not including restaurant sales and certain sales of prepared foods), and receipts of licensed medical care providers from Medicare Part C. There are over fifty specified exemptions and deductions from 18 gross receipts taxation, nevertheless, the general presumption is that all receipts of a person engaging in business in the State of New Mexico are subject to the Gross Receipts Tax. Manner of Collection and Distribution of Gross Receipts Tax. Businesses must make their payments of Gross Receipts Tax on or before the twenty-fifth of each month for taxable events in the prior month. Collection of the State Gross Receipts Tax is administered by the Revenue Division of the Taxation and Revenue Department of the State (the "Revenue Division"), pursuant to Section 7-1-6, NMSA. Collections are first deposited into a suspense fund for the purpose of making disbursements for refunds, among other items. On the last day of each month, the balance of the suspense fund is transferred to the State general fund, less disbursements to the municipalities in the State. Remedies for Delinquent Taxes. The Revenue Division may assess gross receipts taxes to a taxpayer who has not paid the taxes due to the State. If any taxpayer to whom gross receipts taxes have been assessed or upon whom demand for payment has been made does not make payment thereof (or protest the assessment or demand for payment) within 30 days after the date of assessment or demand for payment, the taxpayer becomes a delinquent taxpayer. Such taxpayer remains delinquent until payment of all the taxes due, including interest and penalties, or until security is furnished for the payment thereof. The Revenue Division may, under certain circumstances, enter into an agreement with a delinquent taxpayer to permit monthly installment payments for a period of not more than 36 months. Interest is due on any delinquent tax from the first day following the day on which it is due at the rate of 1.25% per month until paid, without regard to any installment agreement. However, if the Gross Receipts Tax is paid within 10 days after demand is made, no interest shall be imposed for the period after the date of demand. The Revenue Division may levy upon all property or rights to property of a delinquent taxpayer and sell the same in order to collect the delinquent tax. The amount of delinquent Gross Receipts Taxes is also a lien in favor of the State upon all property and rights to property of the delinquent taxpayer, which lien may be foreclosed as provided by State statutes. State Shared Gross Receipts Tax Report. Set forth below is a 5-year history of the State Shared Gross Receipts Tax Revenues received by the City: Fiscal Year Ended 6/30 State Gross Receipts Tax Rate Percentage Distributed to City 2012(2) 2011 2010 2009 2008 5.125% 5.125% 5.125% 5.000% 5.000% 1.225% 1.225% 1.225% 1.225% 1.225% State Shared Gross Receipts Tax Revenues(1) 9,593,916 9,367,687 8,809,885 8,875,937 8,753,112 Percent Increase (Decrease) 2.41% 6.33% (0.74%) 1.40% - ____________________ Source: State of New Mexico Department of Finance and Administration, Local Government Division; City of Clovis Finance Director. (1) Includes all Pledged Revenues received by the City. Does not include other gross receipts taxes imposed by the City, which are not part of Pledged Revenues. (2) Unaudited Other Gross Receipts Taxes (not pledged) Pledged Revenues consist of the 1.225% State Shared Gross Receipts Tax Revenues. The City also imposes certain other gross receipts taxes which are not pledged to the repayment of the Bonds. These include 19 six additional 0.25% increments of Municipal Gross Receipts Tax totaling 1.5%, a 0.25% Municipal Infrastructure Gross Receipts Tax, a 0.25% Municipal Capital Outlay Tax, and a 0.0625% Municipal Environmental Services Gross Receipts Tax. The total gross receipts tax rate within the City is 7.8125% (combined State (5.125%), County (0.625%) and City (2.0625%) gross receipts tax rates). Gross Receipts Reported by Standard Industrial Classification The following represents total taxable gross receipts reported in the City by Standard Industrial Classification: Total Taxable Gross Receipts Fiscal Year Classification Agriculture Mining Utilities Construction Manufacturing Wholesale Retail Transport. Information & Cultural Finance Real Estate Professional Management Waste Manag. Educational Services Health Care Arts Hospitality Other Unclassified Total Taxable Total Reported ___________________ Source: New Mexico Taxation and Revenue Department. (1) Includes nine month period ending March 31st, 2012 2012(1) 440,059 30,929,425 61,910,102 2,019,000 8,924,671 202,238,311 2,491,753 24,277,411 2,625,332 8,412,474 17,733,039 4,246,664 312,010 32,451,083 535,073 56,236,420 48,418,786 472,632 504,674,243 996,249,680 20 2011 619,721 37,505,369 90,494,638 2,845,019 11,630,916 267,643,583 3,160,779 29,507,275 4,080,520 10,274,386 25,287,260 4,785,916 767,538 39,493,063 571,492 74,004,018 68,589,316 1,468,864 672,729,672 1,209,087,996 2010 1,006,294 37,514,100 60,040,291 2,838,713 10,956,256 257,984,572 2,798,170 30,499,287 2,853,186 10,026,700 27,620,599 4,418,604 515,389 39,565,166 549,857 68,735,212 64,566,893 1,899,812 624,389,101 1,071,410,263 2009 1,340,331 36,521,174 72,977,072 3,129,083 11,786,285 249,173,152 2,559,904 20,608,546 4,693,962 9,710,796 25,883,014 3,793,695 504,714 39,902,669 543,526 66,429,063 75,827,452 2,447,900 627,832,337 1,110,592,823 Historical Total Gross Receipts Reported For City, County and State The following represents the total gross receipts reported in the City, the County and the State. Total gross receipts and total taxable gross receipts reported in the tables below include amounts representing the sale of items which may not be subject to Gross Receipts Tax. See "PLEDGED REVENUES – Taxed Activities" and "PLEDGED REVENUES – Exemptions" herein for an explanation of activities which are subject to, or exempt from, Gross Receipts Tax. Calendar Year 2011 2010 2009 2008 2007 City of Clovis Total 1,209,087,996 1,071,410,263 1,110,592,823 1,066,111,080 986,237,687 Curry County Total 1,726,857,298 1,391,491,727 1,470,698,703 1,423,195,758 2,230,686,359 State of New Mexico Total 102,715,750,442 94,722,576,401 104,562,006,074 110,710,199,751 103,740,330,414 ___________________ Source: New Mexico Taxation and Revenue Department and UNM Bureau of Business and Economic Research. Historical Taxable Gross Receipts Reported For City and State Fiscal Year 2012(1) 2011 2010 2009 Taxable Gross Receipts Reported in City of Clovis $680,685,676 672,729,672 624,389,101 627,832,337 Taxable Gross Receipts Reported in State of New Mexico $49,600,793,841 47,900,969,677 45,117,483,589 48,383,671,602 ___________________ Source: New Mexico Taxation and Revenue Department. ADDITIONAL OBLIGATIONS PAYABLE FROM PLEDGED REVENUES Parity Obligations Nothing in the Bond Ordinance shall be construed in such a manner as to prevent the issuance by the City of additional bonds or other obligations payable from the Pledged Revenues and constituting a lien upon the Pledged Revenues on a parity with, but not prior or superior to, the lien of the Bonds, nor to prevent the issuance of bonds or other obligations refunding all or a part of the Bonds herein authorized, provided, however, that before any such additional Parity Obligations are issued including those parity lien refunding bonds and other parity lien refunding obligations which refund subordinate lien bonds and other subordinate lien obligations, but not including parity lien refunding bonds and other parity lien refunding obligations which refund outstanding Parity Obligations as permitted by the Bond Ordinance and described below: (a) the City is then current in all of the accumulations required to be made in the pursuant to the Bond Ordinance; (b) no default shall exist in connection with any of the covenants or requirements of the Bond Ordinance; and (c) the Pledged Revenues received by the City for the Fiscal Year immediately preceding the date of issuance of such additional Parity Obligations shall have been sufficient to pay an amount representing 21 at least 200% of the combined maximum annual principal and interest coming due in any subsequent Fiscal Year on the then Outstanding Bonds, all other then outstanding Parity Obligations and the Parity Obligations proposed to be issued (excluding any reserves therefor); provided that if such additional Parity Obligations are issued as variable rate obligations, the highest interest rate allowed by the instruments authorizing such additional Parity Obligations shall be used in making such calculation. Certification or Opinion Regarding Pledged Revenues. A written certificate or opinion by the City Treasurer that the Pledged Revenues are sufficient to pay the required amounts under the test set forth above, shall conclusively determine the right of the City to issue additional Parity Obligations. The City Treasurer may utilize the results of any annual audit to the extent it covers the applicable period. Debt Service Reserve Funds or Accounts. The City may establish a reserve fund or account pursuant to the provisions of the applicable ordinance authorizing the issuance of additional Parity Obligations for the purpose of paying or securing such additional Parity Obligations or any specific group of issues or series of additional Parity Obligations and the amounts once deposited in said funds or accounts shall no longer constitute Pledged Revenues but shall be held solely for the benefit of the Owners of the particular issue or series or group of issues or series of additional Parity Obligations for which such fund or account was established; provided, however, any pledge of and lien on the Pledged Revenues of such reserve fund shall be junior and subordinate to the pledge and lien of the Parity Obligations (and the requirements of the Bond Ordinance) and shall be on a parity with, or otherwise junior and subordinate to, the pledge of and lien on the Pledged Revenues of the Series 2012 Reserve Fund. Each such fund or account shall be designated in such manner as is necessary to identify the additional Parity Obligations it secures and to distinguish such fund from any other funds or accounts created for the benefit of any other Parity Obligations. Subordinate Obligations Permitted. Nothing in the Bond Ordinance contained shall be construed in such a manner as to prevent the issuance by the City of additional bonds or other obligations payable from the Pledged Revenues and constituting a lien upon the Pledged Revenues subordinate, inferior and junior to the lien on the Bonds. Superior Obligations Prohibited. Nothing herein contained shall be construed so as to permit the City to issue bonds or other obligations payable from the Pledged Revenues having a lien thereon prior and superior to the Bonds. Refunding Bonds The provisions of the Bond Ordinance described above are subject to the following exceptions: Privilege of Issuing Refunding Obligations. If at any time after the Bonds, or any part thereof, shall have been issued and remain outstanding, the City shall find it desirable to refund any outstanding bonds or other outstanding obligations payable from the Pledged Revenues, such bonds or other obligations, or any part thereof, may be refunded (but only with the consent of the registered owner or owners thereof, unless the bonds or other obligations, at the time of their required surrender for payment, shall then mature, or shall then be callable for prior redemption at the City’s option), regardless of whether the priority of the lien for the payment of the refunding obligations on the Pledged Revenues is changed (except as provided in the Bond Ordinance). Limitations Upon Issuance of Parity Refunding Obligations. No refunding bonds or other refunding obligations payable from the Pledged Revenues shall be issued on a parity with the Bonds, unless: (i) The lien on the Pledged Revenues of the outstanding obligations so refunded is on a parity with the lien thereon of the Bonds; or 22 (ii) Ordinance. The refunding bonds or other refunding obligations are issued in compliance with the Bond Refunding Part of an Issue. The refunding bonds or other obligations so issued shall enjoy complete equality of lien with the portion of any bonds or other obligations of the same issue which is not refunded, if any there be; and the registered owner or owners of such refunding bonds or such other refunding obligations shall be subrogated to all of the rights and privileges enjoyed by the registered owner or owners of the bonds or other obligations of the same issue refunded thereby. Limitations Upon Issuance of any Refunding Obligations. Any refunding bonds or other refunding obligations payable from the Pledged Revenues shall be issued with such details as the City may by ordinance provide, but without any impairment of any contractual obligations imposed upon the City by any proceedings authorizing the issuance of any unrefunded portion of such outstanding obligations of any one or more issues (including, without limitation, the Bonds). If only a part of the outstanding Bonds and any other outstanding obligations of any issue or issues payable from the Pledged Revenues is refunded, then such obligations may not be refunded without the consent of the registered owner or owners of the unrefunded portion of such obligations, unless: (a) The refunding bonds or other refunding obligations do not increase any aggregate annual principal and interest requirements evidenced by such refunding obligations and by the outstanding obligations not refunded on and prior to the last maturity date of such unrefunded obligations; or (b) Ordinance; or The refunding bonds or other refunding obligations are issued in compliance with the Bond (c) The lien on the Pledged Revenues for the payment of the refunding obligations is subordinate to each such lien for the payment of any obligations not refunded. CITY COVENANTS IN THE BOND ORDINANCE The City covenants in the Bond Ordinance, among other things, that: Use of Bond Proceeds. The City, with the proceeds derived from the sale of the Bonds, shall proceed without delay to carry out the Project as herein provided. Payment of Bonds. The City shall promptly pay the principal of and the interest of every Bond at the place, on the dates and in the manner specified herein and in the Bonds according to the true intent and meaning hereof. Such principal and interest are payable solely from the Pledged Revenues; provided that nothing herein shall prevent the City, in its discretion, from paying such principal and interest from any other legally available funds. Records. The City shall keep books of record and account, separate and apart from all other records and accounts, showing complete and correct entries of all transactions relating to the Pledged Revenues. Audits. The City shall, within 270 days following the close of each Fiscal Year, cause an audit of such books and accounts related to the Pledged Revenues to be made by an Independent Accountant unless the audit cannot be conducted within 270 days following the close of each Fiscal Year because the State Auditor or other authority of the State with superintending control of the audit directs that the audit be made by a designated auditor under different time deadlines or by the State Auditor’s office and staff, in which case, the City will use its best efforts to have the audit completed as soon as possible following the close of the Fiscal Year. 23 Extending Interest Payments. In order to prevent any accumulation of claims for interest after maturity the City shall not directly or indirectly, extend or assent to the extension of the time for payment of any claim for interest on any of the Bonds, and it shall not directly or indirectly be a party to or approve any arrangement for such extension or for the purpose of keeping alive any of said interest and in case the time for payment of any such interest shall be extended, such installment or installments of interest after such extension or arrangement shall not be entitled in case of default hereunder to the benefit or security of this Ordinance except subject to the prior payment in full of the principal of all Bonds then outstanding, and of matured interest on such Bonds the payment of which not been extended. Performing Duties. The City shall faithfully and punctually perform all duties with respect to the Bonds required by Constitution and laws of the State of New Mexico and the home-rule charter of the City, ordinances and resolutions of the City, including but not limited to the proper segregation of the Pledged Revenues and their application to the respective funds and accounts. Other Liens. Other than as described in this Ordinance, there are no liens or encumbrances of any nature, whatsoever, on or against the Pledged Revenues. Duty with Respect to Pledged Revenues. If the statutes or any ordinance which materially affects the Pledged Revenues or any part of such ordinances shall ever be held to be invalid or unenforceable, the City shall immediately take any action necessary to produce sufficient Pledged Revenues to comply with the contracted obligations of this Ordinance. Impairment of Contract. Any law or ordinance or resolution of the City in any manner affecting the Pledged Revenues or the Bonds, or otherwise appertaining thereto, shall not be repealed or otherwise directly or indirectly modified, in such a manner as to impair adversely any Bonds Outstanding, unless the consent of the required percentage of the Owners of the then Outstanding Bonds is obtained pursuant to Section 34. City’s Existence. The City shall maintain its corporate identity and existence unless another political subdivision by operation of law succeeds to the duties, privileges, powers, liabilities, disabilities, immunities and rights of the City, and is obligated by law to receive and distribute the Pledged Revenues in place of the City, without affecting to any substantial degree the privileges and rights of any Owner. Tax Covenant. The City shall not take any action or omit to take any action with respect to the Bonds, the proceeds thereof, any other funds of the City or any facilities financed with the proceeds of the Refunded Bonds if such action or omission: (i) would cause the interest on the Bonds to lose its exclusion from gross income for federal income tax purposes under Section 103 of the Code; or (ii) would cause interest on the Bonds to lose its exclusion from alternative minimum taxable income as defined in Section 55(b)(2) of the Code except to the extent such interest is required to be included in the adjusted current earnings adjustment applicable to corporations under Section 56 of the Code in calculating corporate alternative minimum taxable income. This covenant shall remain in full force and effect notwithstanding the payment in full or defeasance of the Bonds until the date on which all obligations of the City in fulfilling the above covenant under the Code have been met. Continuing Disclosure Undertaking. The officers of the City are authorized to sign such documents and to take such actions in the future with respect to the City's continuing disclosure obligations as are necessary or desirable to comply with the Continuing Disclosure Undertaking and the requirements of Rule 15c2-12 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Notwithstanding any other provisions of the Bond Ordinance, failure of the City to comply with the Continuing Disclosure Undertaking shall not be considered an "event of default", and holders 24 and beneficial owners of Bonds shall be entitled to exercise only such rights with respect thereto as are provided in the Continuing Disclosure Undertaking. THE CITY General The City is a political subdivision of the State of New Mexico organized and existing under the Constitution and laws of the State. Clovis serves as the county seat of Curry County, New Mexico. The City was incorporated in 1909 and operates under a home-rule charter adopted in 1971 and amended in 2004. The City operates under a Commission-Manager form of government with the Mayor having limited duties. Government Commissioners and the Mayor are elected for staggered four year terms. The Mayor and the City Commission and the date of expiration of their current terms are as follows: Office Name David Lansford Chris Bryant Randy Crowder Juan F. Garza Fidel Madrid Robert Sandoval Dan Stoddard Sandra Taylor-Sawyer Len Vohs Mayor Commissioner, District 4 Commissioner, District 1 Commissioner, District 1 Commissioner, District 3 Commissioner, District 3 Commissioner, District 4 Commissioner, District 2 Commissioner, District 2 and Mayor Pro-Tem Current Term Expires 2016 2016 2016 2014 2016 2014 2014 2016 2014 Administrative Officers Joe Thomas, City Manager. The City Manager is the administrative head of the City and is responsible to the City Commission for the administration and execution of all affairs of the City. The City Manager oversees and prepares a complete report on administrative activities of the City and keeps the City Commission advised of the financial condition and future needs of the City. The City Manager is responsible for (14) fourteen different departments. The City Manager also has an Executive Assistant, and a Secretary. Other Employees As of June 30, 2012, the City has approximately 432 full time, part time and seasonal employees, 34 of which are represented by labor unions. The City believes that relations with its employees are good. Public Employee Retirement Association The City participates in a pension plan organized on a statewide basis and operated by the State of New Mexico. The Public Employees' Retirement Association of New Mexico ("PERA"), established by Section 10-11-1 et seq. NMSA 1978, as amended, requires contributions to its plan (the "Plan"), computed as 25 a percentage of salary, from both employee and employer for all full time employees. The majority of State and municipal employees in New Mexico participate in the Plan. The Plan requires the following contribution percentages: City 18.50% 21.25% 11.65% Police Fire All other contributing employees Employees 16.30% 14.80% 10.65% In addition to retirement benefits, the Plan provides disability benefits, surviving spouse and children's benefits, deferred benefits option and cost of living adjustments for all eligible participants. City contributions to the Plan amounted to approximately $564,727 for the fiscal year ended June 30, 2011. The City's liability under the Plan is limited to the periodic employer contributions, as described above, that it is required to make for its participating employees. PERA issues a publicly available financial report that includes financial statements and additional information. A copy of this report can be obtained by writing to PERA, P.O. Box 2123, Santa Fe, New Mexico 87504-2123. Actuarial information, as of June 30, 2010, is shown below: State of New Mexico Public Employees Retirement Fund Summary Information as of June 30, 2010 Membership1 Actuarial Information Actuarial Accrued Liability2 Actuarial Value of Assets Unfunded Actuarial Accrued Liability 84,528 $15,601,461,460 12,243,712,850 3,357,748,610 ____________________ Source: PERA Annual Actuarial Valuation 1 Includes active and retired members from all divisions. 2 Includes accrued liability of both the retired and active members. The Plan suffered as a result of volatility in the financial markets and economic recession from late 2007 into 2009. The Plan lost approximately 30% of its value as of February 2009 and closed Fiscal Year 2009 with a loss of 24.27%. The Plan experienced positive gains in Fiscal Year 2010 with a total fund return of 15.02%. The balance of the fund as of September 30, 2010 was approximately $11.125 billion dollars. The 12-month return for the 12 month period ending September 30, 2010 was 11.66%, primarily attributable to good market conditions and performance of the fund. There are approximately 49,097 active members of PERA, 8342 inactive members of PERA and approximately 27,089 retirees and beneficiaries receiving benefits from PERA as of June 30, 2010. The State legislature has made significant changes to the existing system, which changes impact future members, in order to address the potential future insolvency of the retirement plan. Under current law, the City is not responsible for any future deficiencies in the retirement plan. New Mexico Retiree Health Care Authority The City contributes to the New Mexico Retiree Health Care Fund, a cost sharing, multiple employer, defined benefit post-employment health care plan administered by the New Mexico Retiree Health Care Authority ("NMRHCA"). The NMRHCA provides health care insurance and prescription drug benefits to 26 retired employees of participating New Mexico government agencies, their spouses, dependents, and surviving spouses and dependents. The RHCA Board was established by the Retiree Health Care Act (Sections 10-7C-1 through 10-7C-19 NMSA 1978). The Board is responsible for establishing and amending benefit provisions of the health care plan and is also authorized to designate optional and/or voluntary benefits such as dental, vision, supplemental life insurance, and long-term policies. The Retiree Health Care Act establishes the required contributions of the participating employers and their employees. Contributions are scheduled to be increased for both employers and employees as follows: employer contributions in Fiscal Year 2011 -- 1.666%, Fiscal Year 2012 – 1.834%, and Fiscal Year 2013 – 2.000%; employee contributions in Fiscal Year 2011 – 0.833%, Fiscal Year 2012 – 0.917%, and Fiscal Year 2013 – 1.000%. Prior to this change, each participating employer was required to contribute 1.3% of each participating employee's annual salary and each participating employee was required to contribute 0.65% of his salary. A financial report from the NMRHCA can be obtained at 4308 Carlisle Blvd. NE, Suite 104, Albuquerque, NM 87107. Based on the Governmental Accounting Standards Board ("GASB") Statement 43 valuation for the Fiscal Year ended June 30, 2006, and assuming that the NMRHCA Fund is an equivalent arrangement to an irrevocable trust and, hence using a discount rate of 5.0%, the unfunded actuarial accrued liability has been calculated to be approximately $4.1 billion. As required by GASB Statement 43, this calculation takes into consideration only current assets of the NMRHCA Fund. The Legislative Council, the Legislative Finance Committee, the Governor and the NMRHCA, as required by statute, established a working group that, among other things, examined the options to improve the actuarial soundness of the NMRHCA Fund and reported its findings to the Governor, the New Mexico Legislative Council, at the Legislative Finance Committee and the NMRHCA. In January 2008, NMRHCA's fund was projected to be insolvent by June 2014. However, recent actions by the NMRHCA have improved its financial outlook. The NMRHCA Board recently approved an 8% premium increase starting in 2011 which is expected to help ensure solvency. On July 9, 2010 NMRHCA announced that it has applied for $20 million dollars in reimbursements under the recently enacted federal health care reform bill. The funds are available under the early retirement provision and should help lower costs for retirees under 65. These actions, taken together are expected to increase the projected solvency period to the year 2028. NMRHCA also established, as policy, that premium increases going forward should track medical trend increases. In the past, premium increases were substantially lower than medical inflation, which was a leading contributor to declining solvency. Under current law, the City is not responsible for any future deficiencies in NMRHCA. City Budgets The City adheres to the following procedure in establishing its annual budget: the City Staff prepares a budget which is forwarded to the City Commission prior to May 1 for the fiscal year commencing the following July 1; public input is sought by the City Council during the month of May through public hearings; the budget is approved by the City Council and forwarded for approval to the State of New Mexico, Local Government Division of the Department of Finance and Administration; the final budget is returned to the City with recommended changes and modifications; and the final budget is acknowledged by the City Council. The operating budget includes proposed expenditures and the means of financing them. The City Manager is authorized to transfer budgeted amounts between departments within any fund, but he must obtain approval of the City Commission and the State prior to making revisions that alter the total 27 expenditures of any fund. As a management control device, the City employees formal budgetary integration at the line item level. Deficit financing is not permitted under New Mexico law. The level of classification detail at which expenditure may not legally exceed appropriation for each budget item is the fund level (i.e., General, Water, Wastewater, etc.). Industry Education Clovis Municipal School District No. 1 is a political subdivision of the State organized for the purpose of operating and maintaining an educational program for the school age children residing within its boundaries. The District encompasses approximately 462 square miles which includes the City and unincorporated portions of Curry County. The District’s enrollment is approximately 8,588 students. The District operates 12 elementary schools, 1 early education center, 2 middle schools, 1 freshman campus, 1 family center, and 1 senior high school. Clovis Community College is a two-year comprehensive community college established in 1991. The College offers a variety of academic and vocational instructional programs; student services; community services; developmental education; and social, recreational and cultural enrichment. The current student population is over 4,000. Eastern New Mexico University is located 18 miles from Clovis in Portales, New Mexico. It is a fully accredited co-educational university offering undergraduate, graduate and professional degree-granting programs. The University, a land grant institution of the State of New Mexico, which was founded in 1927, maintains educational facilities on a main campus and has one branch campuses. The Portales campus has an enrollment of over 5,000 students. Agriculture The City is situated in the center of an extensive farming and ranching region. Wheat, sorghum, corn, sugar beets, alfalfa, barley, soybeans and potatoes grow well in the region’s many dry land farms. Dairy cattle are present in the area, making dairy production another major contributor to the local economy. In 2010, Curry County accounted for almost 16.7% of cash receipts for all farm commodities within the State of New Mexico, making it the largest agricultural center in the State. Transportation Transportation is provided through a modern highway system which includes U.S. Highways 60, 70 and 84 and New Mexico Highways 18, 423 and 77. The Atchison, Topeka and Santa Fe Railway also operates a major switching facility at its Clovis railroad yard. Air transportation also is available through the Clovis Municipal Airport where Mesa Air operates daily flights to and from Albuquerque, New Mexico. Cannon Air Force Base Cannon Air Force Base, named in honor of General John K. Cannon, a former commander of the Tactical Air Command, is located six miles west of Clovis and is 4,295 feet above sea level. The history of the Base began in the late 1920s, when a civilian passenger facility, Portair Field, was established on the site. 28 Since then until present time, Cannon has had a rich history of different missions. On May 13, 2005, Cannon AFB was placed on the DoD BRAC list for closure. A BRAC Commission public hearing was held in an effort to get Cannon AFB off the list. On August 26, 2005, the BRAC recommended that Cannon AFB be placed in an enclave status until Dec.31, 2009. Finding a new mission for Cannon was a top priority for the Air Force. Local and public officials worked diligently to insure Cannon’s assets were fully utilized. On October 1, 2007, a new era began at Cannon AFB as the new Special Operations Wing (“SOW”) activated as the 27th SOW, a new component of Air Force Special Operations Command (“AFSOC”). On June 18, 2010, the CV-22 Osprey made its official arrival to Cannon AFB. A total of 15 Ospreys are planned for Cannon AFB. The CV-22 Osprey is a tilt rotor aircraft that combines the vertical takeoff, hover and vertical landing qualities of a helicopter with the long-range, fuel efficiency and speed characteristics of a turboprop aircraft. Its mission is to conduct long-range infiltration, exfiltration and resupply missions for special operations forces. Currently, 4,722 active-duty members and government civilians and 693 permanent party contractors make up the work force at Cannon Air Force Base. Labor Force and Percent Unemployed The following table, derived from information supplied by the New Mexico Department of Workforce Solutions, presents information on employment within Curry County, the State and the United States, for the periods indicated. The annual unemployment figures indicate average rates for the entire year and do not reflect monthly or seasonal trends. Year 2012* 2011 2010 2009 2008 2007 2006 2005 2004 2003 Curry County Labor Percent Force Unemployed 21,243 4.90% 21,449 4.50% 22,187 5.50% 21,351 3.60% 21,622 2.60% 21,158 2.90% 21,105 3.50% 20,630 4.30% 20,286 4.40% 20,706 3.70% State of New Mexico Labor Percent Force Unemployed 932,132 7.00% 941,871 6.90% 962,256 8.30% 954,072 5.70% 942,173 3.80% 938,383 3.80% 935,350 4.20% 915,489 5.30% 902,080 5.80% 899,383 5.80% ___________________ *Through June 2012 Source: New Mexico Department of Workforce Solutions. 29 United States Percent Unemployed 8.20% 9.00% 9.60% 8.10% 4.80% 4.50% 4.50% 4.90% 5.40% 5.80% Covered Wage and Salary Employment by NAICS Code Classification for Curry County The New Mexico Department of Workforce Solutions publishes quarterly reports of covered employment and wages. Employment is classified according to the North American Industry Classification System (NAICS). Curry County Grand Total Total Private Agriculture, Forestry, Fishing & Hunting Mining Utilities Construction Manufacturing Wholesale Trade Retail Trade Transportation & Warehousing Information Finance & Insurance Real Estate & Rental & Leasing Professional & Technical Services Management of Companies & Enterprises Administrative & Waste Services Educational Services Health Care & Social Assistance Arts, Entertainment & Recreation Accommodation & Food Services Other Services, ex. Public Administration Unclassified Total Government Federal State Local 2006 2007 2008 2009 2010 $26,593 24,669 52,712 29,681 34,239 24,355 20,797 27,298 28,325 33,549 20,918 19,856 7,704 10,848 19,575 33,134 34,260 36,302 37,998 32,828 $27,666 25,685 56,175 28,642 36,198 22,049 22,076 32,545 26,343 34,109 23,020 21,103 66,596 29,812 7,993 11,330 19,402 10,173 35,596 41,272 40,411 32,824 $29,006 27,193 28,001 85,409 56,190 34,359 36,400 24,632 22,676 33,922 29,332 35,615 25,026 20,900 63,367 29,848 8,071 12,012 20,160 7,020 36,314 41,174 42,087 33,653 $29,910 27,985 60,739 35,458 37,243 29,520 22,894 33,291 29,739 35,933 22,006 22,091 7,866 29,828 8,934 12,876 21,160 * 37,484 42,457 44,362 34,549 $30,485 28,615 63,780 33,534 38,649 32,612 23,689 35,890 29,819 37,400 22,371 27,938 21,369 30,590 11,955 12,619 21,878 * 37,753 43,320 42,263 34,764 *There was no employment in this sector. Source: New Mexico Dept. of Workforce Solutions 30 Major Employers The following are the thirteen largest employers (according to approximate number of employees) located in Clovis. Largest Employers City of Clovis Employer Name Cannon AFB Active Duty Personnel Allsup’s Convenience Stores Clovis Municipal Schools Cannon AFB Civilian Personnel Plains Regional Medical Center Burlington Northern Santa Fe Railway City of Clovis Wal-Mart ENMRSH, Inc. Clovis Community College Southwest Cheese Plateau Telecommunications Community Homecare State of New Mexico Employees Curry County Number of Employees 5,439 3,000 1,050 686 600 550 448 400 360 359 330 278 250 240 165 __________________ Source: Clovis Chamber of Commerce, updated January 2012. Per Capita Income The following table sets forth annual per capita personal income levels for Curry County, the State of New Mexico, and the United States. Curry County’s and the State's per capita income levels over this period have been lower than the national average. Year 2011 2010 2009 2008 2007 2006 Curry County N/A 36,931 34,165 34,711 31,560 28,636 New Mexico $34,575 33,837 32,992 33,389 32,093 30,513 United States $41,663 40,584 39,138 40,166 39,392 37,968 ___________________ Source: UNM Bureau of Business & Economic Research Effective Buying Income The following table reflects the percentage of households by Effective Buying Income ("EBI") and a three-year comparison of the estimated median household income as reported by Nielson Claritas, Inc. EBI is personal income less personal tax and non-tax payments. Personal income includes wages and salaries, other labor income, proprietors' income, rental income, dividends, personal interest income, and transfer payments. Deductions are made for federal, state, and local taxes, non-tax payments such as fines and penalties, and personal contributions for social security insurance. The following chart depicts the median household EBI level for the City of Clovis, Curry County, the State of New Mexico and the United States. 31 Effective Buying Income Group City of Clovis Curry County New Mexico United States 35.2% 15.4% 17.5% 16.6% 15.3% 34.2% 15.6% 17.9% 17.2% 15.2% 28.1% 12.3% 16.2% 18.8% 24.6% 23.8% 11.1% 15.5% 19.5% 30.1% $34,624 34,967 36,442 35,227 $35,223 35,167 36,758 35,532 $41,958 42,030 43,932 42,752 $49,581 49,726 52,795 51,433 Under $25,000 $25,000 – 34,999 $35,000 – 49,999 $50,000 - 74,999 $75,000 and over 2012 Est. Median Household Income 2011 Est. Median Household Income 2010 Est. Median Household Income 2009 Est. Median Household Income ____________________ Source: Nielson Company, 2012 Age Distribution The following table sets forth a comparative age distribution profile for the City of Clovis, Curry County, the State of New Mexico and the United States as of 2012. Age Group City of Clovis Curry County New Mexico United States 0-17 18-24 25-44 45-54 55 and Older 29.8% 9.8% 26.9% 11.7% 21.9% 29.6% 10.8% 26.8% 11.8% 21.0% 25.7% 9.8% 26.1% 13.9% 24.5% 24.5% 9.7% 27.0% 14.6% 24.2% ____________________ Source: Nielsen Company, 2012 Population The following table sets forth the population of the City of Clovis and the State of New Mexico, based on the United States Census through 2010 and as projected for 2020 and 2030. Based on information gained from the Bureau of Business & Economic Research, the following table shows both the historical and projected population data for the State of New Mexico and the City of Clovis. Year 2030* 2020* 2010 2000 1990 1980 1970 1960 City of Clovis N/A N/A 37,775 32,667 30,954 31,194 28,495 23,713 ____________________________ Source: U.S. Census Bureau & UNM Bureau of Business & Economic Research 32 State of New Mexico 2,864,796 2,540,145 2,059,179 1,819,046 1,515,369 1,303,143 1,017,055 951,023 Building Permits and Assessed Valuations City of Clovis, New Mexico Building Permits Year 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 Number Valuation of Permits $37,334,860 195 33,976,425 164 47,392,109 220 37,616,681 254 26,442,482 153 42,792,540 251 24,517,508 161 34,364,774 281 17,792,951 149 11,600,453 130 _______________________ Source: UNM Bureau of Business & Economic Research History of Assessed Values Tax Year 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 City of Clovis 497,823,897 450,437,286 422,630,571 398,093,122 364,709,040 329,082,351 304,253,782 287,253,542 281,216,897 279,319,948 ____________________ Source: Curry County Assessor’s Office 33 Curry County 698,324,849 650,202,134 626,026,206 594,198,887 546,875,579 491,212,082 451,314,773 429,008,933 418,326,355 405,753,895 Historical General Fund Balance Sheet Fiscal Year Ending June 30: 2010 2009 2011 ASSETS Cash and investments Restricted cash and investments Receivable: Property taxes Intergovernmental Other receivables Inventory Prepaid insurance Due from other funds Total assets LIABILITIES AND FUND BALANCES Liabilities Accounts Payable Accrued payroll expenses Other accrued expenses Accrued compensated absences Deposits held in trust Deferred property tax revenue Other deferred revenue Due to other funds Total liabilities Fund balances Reserved Prepaid Insurance Nonspendable Unreserved General Unassigned Total fund balances Total liabilities and fund balances 2008 $4,193,059 - $3,842,012 $3,650,515 - $3,928,942 - 105,793 2,574,189 162,429 6,247 356,656 2,028,289 113,088 2,625,242 173,831 4,808 340,915 1,264,207 343,186 2,904,061 153,172 4,749 339,103 1,746,439 94,510 2,744,944 230,020 392,915 1,429,469 $9,426,662 $8,364,103 $9,141,225 $8,820,800 $105,392 694,233 131,383 67,476 10,496 - $20,359 840,137 72,636 58,828 - $64,277 162,738 72,636 319,803 - $353,324 47,131 - 1,008,980 991,960 619,454 516,660 362,903 340,915 339,103 392,915 8,054,779 8,417,682 7,031,228 7,372,143 8,182,668 $8,521,771 7,911,225 8,304,140 $9,426,662 $8,364,103 $9,141,225 $8,820,800 72,636 43,569 - Source: The amounts shown for each fiscal year were derived from the City’s audited financial statements. Reference is made to such financial statements and related audit reports which are available upon request. 34 Historical General Fund Revenues, Expenditures and Changes in Fund Balances Fiscal Year Ending June 30: 2010 2009 2011 REVENUES Taxes: Property Gross receipts Gasoline and motor vehicle Other Intergovernmental: Federal operating grants Federal capital grants State operating grants State capital grants Charges for services Fines, forfeitures, and penalties Licenses and fees Investment income Miscellaneous Total revenues EXPENDITURES Current General government Public safety Public works Culture and recreation Health and welfare Capital outlay: Debt service: Principal Interest Total expenditures Excess (deficiency) of revenues over expenditures 2008 $ 1,613,698 13,773,220 26,863 1,243,943 $ 1,550,536 12,916,706 32,842 831,602 $ 1,257,467 12,881,717 22,900 1,058,726 1,301,740 12,709,354 48,113 1,040,899 184,181 9,849 2,336,319 157,626 463,502 23,447 503,120 411,331 64,791 2,016,890 168,834 369,858 37,160 388,641 319,916 18,771 1,880,302 145,085 334,495 51,128 134,380 971,133 191,342 1,650,391 161,924 304,738 192,885 236,168 20,335,768 18,789,191 18,104,887 18,808,687 3,664,580 13,175,822 283,655 2,251,958 327,879 591,514 3,703,346 13,464,434 272,997 2,109,895 386,341 1,205,481 3,626,325 12,287,260 299,222 1,901,577 336,427 811,508 3,653,614 11,609,381 247,992 1,968,542 335,298 938,927 - - - - 20,295,408 21,142,494 19,262,319 18,753,754 (2,353,303) (1,157,432) 54,933 939,927 8,440 948,367 1,003,300 40,360 OTHER FINANCING SOURCES (USES) Transfers in/(out) Proceeds from sale of capital asset Proceeds from debt issuance Total other financing sources (uses) 990,354 14,825 1,005,179 1,203,675 848,705 2,326 851,031 Net change in fund balances 1,045,539 (1,149,628) (306,401) 1,203,675 Restatement Beginning fund balance 524,032 7,372,143 8,521,771 7,300,840 8,828,172 Beginning fund balance as restated Ending fund balance 8,304,140 $ 8,417,682 $ 7,372,143 $ 8,521,771 $ 8,304,140 ________________ Source: The amounts shown for each fiscal year are derived from the City’s audited financial statements. Reference is made to such financial statements and related audit reports which are available upon request. 35 Other City Obligations The table below summarizes all outstanding revenue bond obligations of the City as of July 1, 2012: Issue Date Original Principal Amount Date of Final Maturity Amount Outstanding as of 7/01/2012 Gross Receipts Tax Revenue Bonds, Series 2005 4/7/2005 $3,580,000 6/1/2025 $2,605,000 Gross Receipts Tax Revenue Bonds, Series 2010 9/21/2012 7,000,000 6/1/2030 6,495,000 Gross Receipts Tax Revenue Bonds, Series 2011A 7/22/2011 3,527,000 6/1/2031 3,327,000 Gross Receipts Tax Revenue Bonds, Taxable Series 2011B 7/22/2011 2,877,000 6/1/2031 2,797,000 NMED Loan 5/19/2006 8,739,413 6/30/2031 7,256,930 Category of Indebtedness Total Revenue Bond Obligations $25,723,413 36 $22,480,930 The table below summarizes all outstanding New Mexico Finance Authority Loan obligations of the City as of July 1, 2012: Amount Outstanding as of 7/01/2012 Interest Rate Date of Final Maturity 454,280 0.25% 6/1/2028 369,946 3/1/2010 125,000 0.25% 6/1/2029 101,796 ENMRWUA 12/1/2012 905,166 6/1/2030 772,263 Solid Waste Projects 5/1/1999 5,429,707 0.25% 3.15% 4.68% 5/1/2013 489,371 Category of Indebtedness Project Issue Date NMFA 2009 WTB-84 Loan ENMRWUA 9/1/2008 NMFA 2009 WTB-56 Loan ENMRWUA NMFA 2010 WTB Loan NMFA Solid Waste Loan Total NMFA Loan Olibgations Original Principal Amount $6,914,153 $1,733,376 ________________ Source: City’s audited financial statements and, as to amounts outstanding as of July 1, 2012, RBC Capital Markets, LLC, as Financial Advisor. LITIGATION AND INSURANCE At the time of the original delivery of the Bonds, the City will deliver a certificate to the effect that no litigation or administrative action of proceedings is pending or, to the knowledge of the appropriate officials, threatened, restraining or enjoining, or seeking to restrain or enjoin, the issuance and delivery of the Bonds, the effectiveness of the Bond Ordinance, the levying or collecting of taxes to pay the principal of and interest on the Bonds or contesting or questioning the proceedings and authority under which the Bonds have been authorized and are to be issued, sold, executed or delivered, or the validity of the Bonds. The risks of loss through damage to buildings, contents, and heavy equipment, and losses from employee defalcation are covered by commercial insurance purchased from third parties. Settled claims from these risks have not exceeded commercial insurance coverage for the past three years. The City has established a self-insurance fund to manage risks related to physical damage to City vehicles, loss associated with actions of employees resulting in damage to the persons or property of others, and for employee injury losses. The risk of loss associated with actions of employees resulting in damage to persons or property of others is subject to limitations of the New Mexico State Tort Claims Act. The self-insurance fund uses excess insurance agreements to reduce its exposure to large losses from employee on-the-job injuries. FINANCIAL ADVISOR RBC Capital Markets, LLC ("RBC CM") is employed as Financial Advisor to the City of Clovis in connection with the issuance of the Bonds. The Financial Advisor’s fee for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness, or fairness of the information in this Official Statement. TRANSCRIPT AND CLOSING STATEMENTS A complete transcript of proceedings and a no-litigation certificate (described above under "LITIGATION AND INSURANCE") will be delivered by the City when the Bonds are delivered. The City will at that time also provide a certificate of the City relating to the accuracy and completeness of this Official Statement. 37 TAX EXEMPTION General In the opinion of Modrall, Sperling, Roehl, Harris & Sisk, P.A., Bond Counsel, to be delivered at the time of original issuance of the Bonds, under existing laws, regulations rulings and judicial decisions, and assuming compliance with covenants described herein, interest on Bonds is excludable from gross income for federal income tax purposes and is not a specific preference item for purposes of the federal alternative minimum tax for individual corporations. Bond Counsel is also of the opinion, based on existing laws of the State of New Mexico as enacted and construed, that interest on the Bonds is excludable from net income for present State of New Mexico income tax purposes. The Internal Revenue Code of 1986, as amended (the "Code"), imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal tax purposes of interest on obligations such as the Bonds. The City has made various representations and warranties with respect to, and has covenanted in the Bond Ordinance and other documents, instruments and certificates to comply with the applicable provisions of the Code to assure that interest on the Bonds will not become includible in gross income. Failure to comply with these covenants or the inaccuracy of these representations and warranties may result in interest on the Bonds being included in gross income from the date of issue of the Bonds. The opinion of Bond Counsel assumes compliance with the covenants and the accuracy of such representations and warranties. Although Bond Counsel has opined that interest on the Bonds is not a specific preference item for purposes of the alternative minimum tax provisions contained in the Code, interest on the Bonds will be included in the adjusted current earnings of certain corporations, and such corporation's adjusted current earnings over its alternative minimum taxable income (determined without regard to this adjustment and prior to reduction for certain net operating losses). Although Bond Counsel has rendered an opinion that interest on the Bonds is excludable from gross income for federal income tax purposes, the accrual or receipt of interest on the Bonds may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences will depend upon the recipient's particular tax status or other items of income or deduction. Bond Counsel expresses no opinion regarding any such consequences. Purchasers of the Bonds, particularly purchasers that are corporations (including S corporations and foreign corporations operating branches in the United States), property or casualty insurance companies, banks, thrifts or other financial institutions, certain recipients of Social Security or Railroad Retirement benefits, taxpayers otherwise entitled to claim the earned income credit or taxpayers who may be deemed to have incurred or continued indebtedness to purchase or carry tax-exempt obligations are advised to consult their tax advisors as to the tax consequences of purchasing or owning the Bonds. The opinions expressed by Bond Counsel are based upon existing law as of the date of issuance and delivery of the Bonds, and Bond Counsel expresses no opinion as of any date subsequent thereto or with respect to any pending legislation. From time to time, there are legislative proposals in Congress that, if enacted, could alter or amend the federal tax matters referred to above or adversely affect the market value of the Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted, it would apply to Bonds issued prior to enactment. Each purchaser of the Bonds should consult his or her own tax advisor regarding any pending or proposed federal tax legislation. Bond Counsel expresses no opinion regarding any pending or proposed federal tax legislation. 38 Qualified Tax-Exempt Obligations. The City has designated the Bonds as qualified tax-exempt bonds for purposes of Section 265 of the Code. Qualified tax-exempt bonds are bonds issued by a qualified small issuer. A qualified small issuer was defined as an issuer who did not reasonably anticipate the amount of its tax-exempt bonds (other than certain private activity bonds) would exceed $10,000,000 in a calendar year. The Code generally provides that a financial institution may not deduct that portion of its interest expense which is allocable to tax-exempt interest. The interest expense which is allocable to tax-exempt interest is an amount which bears the same ratio to the institution's interest expense as the institution's average adjusted basis of tax-exempt obligations acquired after August 7, 1986 bears to the average adjusted basis of all assets of the institution. Tax exempt obligations may be treated as acquired on August 7, 1986 (and therefore are not subject to this rule) if they are "qualified tax-exempt obligations" as defined in the Code and are designated for this purpose by the issuer. Under provisions of the Code dealing with financial institution preference items, certain financial institutions, including banks, are denied 20% of their otherwise allowable deduction for interest expense with respect to obligations incurred or continued to purchase or carry the Bonds. In general, interest expense with respect to obligations incurred or continued to purchase or carry the Bonds will be in an amount which bears the same ratio as the institution's average adjusted basis in the Bonds bears to the average adjusted basis of all assets of the institution. Amendments to the Code could be enacted in the future and there is no assurance that any such future amendments which may be made to the Code will not adversely affect the ability of banks or other financial institutions to deduct any portion of its interest expense allocable to tax-exempt interest. Holders of Bonds should consult their tax advisors regarding the deduction of interest related to debt incurred to purchase or carry the Bonds. Internal Revenue Service Audit Program The Internal Revenue Service (the" Service") has an ongoing program auditing tax-exempt obligations to determine whether, in the view of the Service, interest on such tax-exempt obligations is includable in the gross income of the owners thereof for federal income tax purposes. No assurances can be given as to whether the Service will commence an audit of the Bonds. If an audit is commenced, under current procedures the Service will treat the City as the taxpayer and the Bond owners may have no right to participate in such procedure. Neither the Financial Advisor, the initial purchasers of the Bonds nor Bond Counsel is obligated to defend the tax-exempt status of the Bonds. The City has covenanted in the Bond Ordinance not to take any action that would cause the interest on the Bonds to become includable in gross income except to the extent described above for the owners thereof for federal income tax purposes. None of the City, the Financial Advisor, the initial purchasers of the Bonds or Bond Counsel is responsible to pay or reimburse the costs of any Bond owner with respect to any audit or litigation relating to the Bonds. Original Issue Discount The Bonds may be offered at a discount ("original issue discount") equal generally to the difference between public offering price and principal amount. For federal income tax purposes, original issue discount on a bond accrues periodically over the term of the bond as interest with the same tax exemption and alternative minimum tax status as regular interest. The accrual of original issue discount increases the holder's tax basis in the bond for determining taxable gain or loss from sale or from redemption prior to maturity. Holders of Bonds offered at an original issue discount should consult their tax advisors for an explanation of the accrual rules. 39 Original Issue Premium The Bonds may be offered at a premium ("original issue premium") over their principal amount. For federal income tax purposes, original issue premium is amortizable periodically over the term of a bond through reductions in the holders' tax basis in the bond for determining taxable gain or loss from sale or from redemption prior to maturity. Amortizable premium is accounted for as reducing the tax-exempt interest on the bond rather than creating a deductible expense or loss. Holders of Bonds offered at an original issue premium should consult their tax advisors for an explanation of the amortization rules. FINANCIAL STATEMENTS The general purpose financial statements of the City as of June 30, 2011, and for the year then ended, contained in Appendix A to this Official Statement, have been audited by Hinkle & Landers, P.C., Certified Public Accountants, Albuquerque, New Mexico, as set forth in their report thereon included in Appendix A hereto. Hinkle & Landers, P.C. has not been engaged to perform, and has not performed since June 30, 2011, any procedures on the financial statements shown in the excerpt. Further, Hinkle & Landers, P.C. has not been engaged to perform and has not performed any procedures relating to financial information or any other information contained in this Official Statement. Copies of the City's comprehensive annual financial report may be requested from the City's Finance Department, 321 North Connelly, New Mexico 88101. The financial statements are included for informational purposes only. LEGAL MATTERS Modrall, Sperling, Roehl, Harris & Sisk, P.A., Albuquerque, New Mexico, as Bond Counsel, will render an opinion with respect to the validity of the Bonds and will render the opinions described above under "TAX EXEMPTION." The proposed form of such opinion is attached hereto as Appendix B. Modrall, Sperling, Roehl, Harris & Sisk, P.A., has also acted as Special Counsel to the City in connection with the preparation of the Official Statement. The fees of Bond Counsel and Special Counsel are contingent upon the issuance and delivery of the Bonds. RATINGS The Bonds have been assigned a rating of "_________" from Moody's Investors Services ("Moody's"). An explanation of the significance of such ratings may be obtained from Moody’s. Such rating reflects only the view of Moody's. The rating is not a recommendation to buy, sell or hold the Bonds and there is no assurance that the rating will not be revised downward or withdrawn entirely by the rating agency, if, in its judgment, circumstances so warrant. Any downward revision or withdrawal of such rating may have an effect on the market price of the Bonds. CONTINUING DISCLOSURE The City will enter into an undertaking (the "Undertaking") for the benefit of the holders of the Bonds to provide certain financial information and operating data and to provide notice of certain events, pursuant to the requirements of section (b)(5)(i) of Rule 15c2-12 of the Securities and Exchange Commission (17 C.F.R. § 240.15c2-12). A failure by the City to provide any information required thereunder shall not constitute an Event of Default under the Bond Ordinance. The City has previously entered into continuing disclosure undertaking with respect to certain other obligations of the City in accordance with Section Rule 15c2-12 and, during the last five years, the City has complied in all material respects. 40 ADDITIONAL INFORMATION All of the summaries of the statutes, ordinances, resolutions, opinions, contracts, agreements, financial and statistical data, and other related reports described in this Official Statement are subject to the actual provisions of such documents. The summaries do not purport to be complete statements of such provisions and reference is made to such documents, copies of which are either publicly available or available for inspection during normal business hours at the offices of the City Clerk of the City of Clovis, 321 North Connelly, Clovis, New Mexico 88101, or at the offices of RBC Capital Markets, LLC, 6301 Uptown Blvd. NE, Suite 110, Albuquerque, New Mexico 87110. 41 OFFICIAL STATEMENT CERTIFICATION As of the date hereof, to my knowledge and belief, this Official Statement is true, complete and correct in all material respects, and does not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made herein, in light of the circumstances under which they are made, not misleading. The preparation of this Official Statement and its distribution have been authorized by the Clovis City Commission. CITY OF CLOVIS, NEW MEXICO By: David Lansford, Mayor ATTEST: LeighAnn Melancon, City Clerk Y:\dox\client\85381\0001\GENERAL\W1738793.DOC 42 APPENDIX A EXCERPTS FROM AUDITED FINANCIAL STATEMENTS OF THE CITY OF CLOVIS, NEW MEXICO FOR THE YEAR ENDING JUNE 30, 2011 A-1 STATE OF NEW MEXICO CITY OF CLOVIS FINANCIAL STATEMENTS For The Year Ended June 30 2011 INTRODUCTORY SECTION STATE OF NEW MEXICO CITY OF CLOVIS Table of Contents For the Year Ended June 30, 2011 Page INTRODUCTORY SECTION Table of Contents Official Roster i-iii 1 FINANCIAL SECTION Independent Auditors' Report Management’s Discussion and Analysis Basic Financial Statements Government-wide Financial Statements: Statement of Net Assets Statement of Activities Fund Financial Statements: Balance Sheet – Governmental Funds Reconciliation of the Balance Sheet to the Statement of Net Assets Statement of Revenues, Expenditures, and Changes in Fund Balances – Governmental Funds Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget (Non-GAAP Budgetary Basis) and Actual – General Fund Statement of revenues and expenditures – budget and actual non-GAAP budgetary basis– special revenue funds – Eastern NM Rural Water Special Revenue Fund Statement of Net Assets – Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Assets – Proprietary Funds Statement of Cash Flows – Proprietary Funds Statement of Fiduciary Assets and Liabilities – Agency Funds Notes to the Financial Statements SUPPLEMENTAL INFORMATION Combining and Individual Fund Statements and Schedules: Nonmajor Fund Descriptions Combining balance sheet – non-major governmental funds Combining statement of revenues, expenditures, and changes in fund balances – non-major governmental funds Combining Balance Sheet – Nonmajor Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances – Nonmajor Funds Schedule of Changes in Fiduciary Assets and Liabilities – Agency Funds Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget (Non-GAAP Budgetary Basis) and Actual: Municipal Road Special Revenue Fund Recreation Special Revenue Fund Older Adults Division Special Revenue Fund Environmental Tax Special Revenue Fund i 2-3 4-9 10-11 12 13 14 15 16 17 18 19 20 21-22 23 24-47 48-50 51 52 53-59 60-66 67 68 69 70 71 STATE OF NEW MEXICO CITY OF CLOVIS Table of Contents For the Year Ended June 30, 2011 Page Statement of Revenues, Expenditures, and Changes in Fund Balance – Budget (Non-GAAP Budgetary Basis) and Actual: Fire Equipment Special Revenue Fund Sanitary Sewer Improvement Special Revenue Fund Ned Houk Park Special Revenue Fund Carver Library Special Revenue Fund Golf Course Fund Infrastructure Improvement Special Revenue Fund Special Parks Improvement Special Revenue Fund Civic Center Special Revenue Fund Special Designated Special Revenue Fund Economic Development Special Revenue Fund Capital Outlay Gross Receipts Tax Special Revenue Fund Emergency Medical Services Special Revenue Fund Special Streets Special Revenue Fund Recycling Special Revenue Fund Lodger’s Tax Special Revenue Fund Stimulus Funding Special Revenue Fund Special Fire & Police Special Revenue Fund Local Government Corrections Special Revenue Fund Law Enforcement Protection Special Revenue Fund Area Agency on Aging Special Revenue Fund Clovis Area Transit Special Revenue Fund Department of Justice Special Revenue Fund Drug Control Special Revenue Fund Drainage Improvement Debt Service Fund Civic Center Debt Service Fund Parks & Infrastructure Debt Service Fund Street Construction Capital Projects Fund Drainage Improvement Capital Projects Fund Statement of Revenues, Expenditures and Change in Net Assets – Budget (Non-GAAP Budgetary Basis) and Actual Solid Waste Enterprise Fund Wastewater Enterprise Fund Airport Enterprise Fund Internal Service Fund Descriptions Combining Balance Sheet – Internal Service Funds Statement of Revenues, Expenses and Changes in Fund Net Assets – Internal Service Funds Statement of Cash Flows – Internal Service Funds Statement of Revenues, Expenditures and Changes in Net Assets – Budget (Non-GAAP Budgetary Basis) and Actual: Workers Compensation Internal Service Fund Unemployment Reserve Internal Service Fund Property and Liability Self-Insurance Internal Service Fund Schedule of Expenditures of Federal Awards OTHER SUPPLEMENTAL INFORMATION Schedule of Fund Balances Schedule of Joint Powers Agreements Schedule of Pledged Collateral By Bank and Account ii 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110-111 112 113-114 115-116 STATE OF NEW MEXICO CITY OF CLOVIS Table of Contents For the Year Ended June 30, 2011 Page COMPLIANCE SECTION Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 117-118 FEDERAL FINANCIAL ASSISTANCE Report on Compliance with Requirements That Could Have A Direct and Material Effect On Each Major Program and On Internal Control Over Compliance In Accordance With OMB Circular A-133 Schedule of Findings and Questioned Costs 119-120 121-122 OTHER DISCLOSURES 123 iii STATE OF NEW MEXICO CITY OF CLOVIS Official Roster As of June 30, 2011 City Officials Name Title Gayla Brumfield Mayor Chris Bryant City Commissioner – District 4 Randy Crowder City Commissioner – District 1 Juan F. Garza City Commissioner – District 1 Fidel Madrid City Commissioner – District 3 Robert Sandoval City Commissioner – District 3 Dan Stoddard City Commissioner – District 4 Fred Van Soelen City Commissioner – District 2 Len Vohs Mayor Pro-Tem, City Commissioner – District 2 Administrative Officials Joe Thomas City Manager Don Clifton Director of Budget and Internal Operations Leigh Ann Melancon Finance Director 1 FINANCIAL SECTION INDEPENDENT AUDITORS’ REPORT Hector Balderas New Mexico State Auditor The Office of Management and Budget To the City Manager and City Commission The City of Clovis Clovis, New Mexico We have audited the accompanying financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, the aggregate remaining fund information, and the budgetary comparison for the general fund and special revenue funds of the City of Clovis (City) as of and for the year ended June 30, 2011, which collectively comprise the City’s basic financial statements as listed in the table of contents. We also have audited the financial statements of each of the City’s nonmajor governmental funds, internal service funds, each fiduciary fund, and the budgetary comparisons for the major capital project fund, debt service funds, proprietary funds, and the remaining nonmajor funds presented as supplemental information in the accompanying combining and individual fund financial statements as of and for the year ended June 30, 2011 as listed in the table of contents. These financial statements are the responsibility of City’s management. Our responsibility is to express opinions on these financial statements based on our audit. We did not audit the financial statements of the City of Clovis Housing and Redevelopment Agency, Inc, a discreetly presented component unit of the City, which represents 100 percent of the assets, net assets, and revenues of the discreetly presented component units of the City. Those financial statements were audited by other auditors whose report thereon has been furnished to us, and our opinion, insofar as it related to the amounts included for discreetly presented component units is based on the report of the other auditors. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of the other auditors provides a reasonable basis for our opinions. In our opinion, based on our audit and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, each major fund and the aggregate remaining fund information of the City of Clovis, as of June 30, 2011, and the respective changes in financial position, and cash flows, where applicable, thereof and the budgetary comparisons for the General Fund and major special revenue funds for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of each nonmajor governmental fund, internal service fund and fiduciary fund of the City as of June 30, 2011, and the respective changes in financial position and cash flows, where applicable, thereof and the respective budgetary comparisons for the major capital project fund, debt service funds, proprietary funds, and the remaining nonmajor funds for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 1 to the financial statements, the County implemented Governmental Accounting Standards Board (GASB) Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. 2 November 29, 2011, Independent Auditors’ Report, continued In accordance with Government Auditing Standards, we have also issued our report dated November 29, 2011 on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Management’s Discussion and Analysis on pages 4 through 9 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City’s basic financial statements, the combining and individual fund financial statements, and the budgetary comparisons. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by the U. S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is not a required part of the financial statements. The accompanying financial information listed as “other supplemental information” in the table of contents is presented for purposes of additional analysis and is not a required part of the financial statements of the City of Clovis, New Mexico. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and each of the City’s nonmajor governmental funds and internal service funds financial statements and, in our opinion, based on our audit and the report of the other auditors, is fairly stated, in all material respects, in relation to the basic financial statements, taken as a whole. The introductory section has not been subjected to the auditing procedures applied by us and the other auditors in the audit of the basic financial statements, and accordingly, we express no opinion on it. Hinkle + Landers, PC Albuquerque, New Mexico November 29, 2011 3 STATE OF NEW MEXICO CITY OF CLOVIS Management’s Discussion and Analysis For the Year Ended June 30, 2011 As management of the City of Clovis, we offer the readers of the City of Clovis financial statements this narrative overview and analysis of the financial activities of the City of Clovis for the fiscal year ended June 30, 2011. We encourage readers to consider the information presented here in conjunction with the financial statements of the City of Clovis and additional information provided. Financial Highlights x x x x x The assets of the City of Clovis exceeded its liabilities at the close of the most recent fiscal year by $137,466,516 (net assets). Of this amount, $34,874,026 (unrestricted net assets) may be used to meet the government’s ongoing obligations to citizens and creditors. The government’s total net assets increased by $8,131,604. The majority of this increase is due to the increase in current assets. As of the close of the current fiscal year, the City of Clovis’ governmental funds reported combined ending fund balances of $24,281,849, an increase of $2,910,777 in comparison with the prior year. At the end of the current fiscal year, the unassigned fund balance for the general fund was $8,054,779 or 40 percent of total general fund expenditures. The City of Clovis’ total debt increased by $5,300,645 (35 percent), during the current fiscal year. The key factor in this increase was a $7,000,000 gross receipts tax bond issue for Wastewater Improvements. Overview of the Financial Statements This discussion and analysis is intended to serve as an introduction to the City of Clovis’ basic financial statements. The City of Clovis’ basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves. Government-wide financial statements. The government-wide financial statements are designed to provide readers with a broad overview of the City of Clovis’ finances, in a manner similar to a private-sector business. The statement of net assets presents information on all of the City of Clovis’ assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the City of Clovis is improving or deteriorating. The statement of activities presents information showing how the government’s net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave). Both of the government-wide financial statements distinguish functions of the City of Clovis that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the City of Clovis include general government, public safety, public works, and culture and recreation. The business-type activities of the City of Clovis include an airport, solid waste and wastewater. The government-wide financial statements can be found on pages 10 and 11 of this report. Fund financial statements. A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The City of Clovis, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the City of Clovis can be divided into two categories: governmental funds and proprietary funds. 4 STATE OF NEW MEXICO CITY OF CLOVIS Management’s Discussion and Analysis For the Year Ended June 30, 2011 Governmental Funds. Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a government’s near-term financial requirements. Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities. The City of Clovis maintains thirty-three individual governmental funds. Information is presented separately in the governmental fund balance sheet and statement of revenues, expenditures, and changes in fund balances for the general, which is considered to be a major fund. Data from the other thirty-two governmental funds are combined into a single, aggregated presentation. Individual fund data for each of the nonmajor governmental funds is provided in the form of combining statements elsewhere in this report. The City of Clovis adopts an annual appropriated budget for its general fund and all other governmental funds. A budgetary comparison statement has been provided for the general fund to demonstrate compliance with this budget. In addition, the individual financial statement of the remaining governmental fund types include budgetary comparison date. The basic governmental fund financial statements can be found on pages 13 thru 16 of this report. Proprietary funds. The City of Clovis maintains two types of proprietary funds. Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. The City of Clovis uses enterprise funds to account for its airport, solid waste, and wastewater funds. Internal Service Funds accounts for workers compensation and unemployment insurance services provided to other departments of the government. Services are provided on a cost reimbursement basis. Proprietary funds provide the same type of information as the government-wide financial statements, only in more detail. The proprietary fund financial statements provide separate information for the solid waste, wastewater, and airport, all of which are considered major funds of the City of Clovis. The basic proprietary fund financial statements can be found on pages 19 thru 22 of this report Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found on pages 24 thru 47 of this report. Other Information. The combining statements referred to earlier in connection with nonmajor governmental funds are presented immediately following the notes to the financial statements. Combining and individual fund statements and schedules can be found on pages 48 thru 109 of the report. Government-wide Financial Analysis As noted earlier, net assets may serve over time as a useful indicator of a government’s financial position. In the case of the City of Clovis, assets exceeded liabilities by $137,466,516 at the close of the most recent fiscal year. The largest portion of the City of Clovis’ net assets (73 percent) reflect its investment in capital assets (e.g. land, buildings, machinery and equipment), less any related debt used to acquire those assets that is still outstanding. The City of Clovis uses these capital assets to provide services to citizens; consequently, these assets are not available for future spending. Although the City of Clovis’ investment in its capital assets is reported net of related 5 STATE OF NEW MEXICO CITY OF CLOVIS Management’s Discussion and Analysis For the Year Ended June 30, 2011 debt, it should be noted that the resources needed to repay this debt must be provided from other sources, since the capital assets themselves cannot be used to liquidate these liabilities. City of Clovis Net Assets (In thousands) Current and other assets Governmental Activities June 30, June 30, 2011 2010 $ 29,011 26,731 Capital assets, net of accumulated depreciation Total assets Long-term liabilities outstanding Other Liabilities Business-type Activities June 30, June 30, 2011 2010 15,904 9,781 Total June 30, June 30, 2011 2010 44,915 36,512 73,553 72,790 46,954 42,208 120,507 114,998 102,564 99,521 62,858 51,989 165,422 151,510 4,682 2,481 5,326 3,341 16,701 4,091 10,963 2,546 21,383 6,572 16,289 5,887 Total liabilities $ 7,163 8,667 20,792 13,509 27,955 22,176 Net assets $ 95,401 90,854 42,066 38,480 137,467 129,334 An additional portion of the City of Clovis’ net assets of $2,398,890 (2 percent) represents resources that are subject to external restrictions on how they may be used. The remaining balance of unrestricted net assets $34,874,026 may be used to meet the government’s ongoing obligations to citizens and creditors. At the end of the current fiscal year, the City of Clovis is able to report positive balances in all three categories of net assets, both for the government as a whole as well as for its separate governmental and business-type activities. The same situation held true for the prior fiscal year. There was a net increase of $12,972,257 in capital assets reported. The majority of this increase resulted from the acquisition of vehicles and equipment and the completion of on-going building construction in progress. Governmental activities. Governmental activities increased the City of Clovis’ net assets by $4,545,751. Key elements of this increase are as follows: x The total expenses for governmental activities increased by $3,029,358 due primarily to an increase in public works expenditures, while revenues increased $2,212,968 due mainly to increased tax revenue. x The gross receipts tax revenue increased $1,385,635. Business-type activities. Business-type activities increased the City of Clovis’ net assets by $3,585,853. x Revenue increased $3,202,838 due to an increase in grant revenues. Expenses experienced an increase of $548,591 during the year primarily due to an increase in cost of operations and capital outlay in Wastewater, Solid Waste and Airport. 6 STATE OF NEW MEXICO CITY OF CLOVIS Management’s Discussion and Analysis For the Year Ended June 30, 2011 City of Clovis Comparison of Key Elements (In thousands) Governmental Activities June 30, June 30, 2011 2010 Revenues Taxes Intergovenmental Charges for services Other $ Total revenue Expenses General government Public safety Public works Culture and recreation Health and welfare Interest on long-term debt Solid waste Wastewater Airport Total expenses Transfers Change in net assets Total June 30, June 30, 2011 2010 26,637 8,057 2,541 3,866 24,495 9,208 2,205 2,980 465 3,255 7,022 629 437 351 6,525 856 27,102 11,312 9,563 4,495 24,932 9,559 8,730 3,836 41,101 38,888 11,371 8,169 52,472 47,057 6,440 14,478 8,824 5,138 809 176 - 5,730 14,639 6,581 4,441 1,247 198 - 4,544 3,096 835 4,461 2,807 659 6,440 14,478 8,824 5,138 809 176 4,544 3,096 835 5,730 14,639 6,581 4,441 1,247 198 4,461 2,807 659 35,865 32,836 8,475 7,927 44,340 40,763 690 279 - - 3,586 521 8,132 6,294 (690) $ Business-type Activities June 30, June 30, 2011 2010 4,546 (279) 5,773 Financial Analysis of the Government’s Funds As noted earlier, the City of Clovis uses fund accounting to ensure and demonstrate compliance with financerelated legal requirements. Governmental funds. The focus of the City of Clovis’ governmental funds is to provide information on nearterm inflows, outflows, and balances of spendable resources. Such information is useful in assessing the City of Clovis’ financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. As of the end of the current fiscal year, the City of Clovis’ governmental funds reported combined ending fund balances of $24,281,849, an increase of $2,910,777 in comparison with the prior year. Approximately 32 percent of this total amount, $7,881,461, constitutes unassigned fund balance, which is available for spending at the government’s discretion. Of the remainder, $685,350 is non-spendable as it is for inventory and prepaid expenses. The general fund is the chief operating fund of the City of Clovis. At the end of the current fiscal year, unassigned fund balance of the general fund was $8,054,779 and represents 40 percent of total general fund expenditures. The fund balance of the City of Clovis’ general fund increased by $1,045,539 during the current fiscal year. 7 STATE OF NEW MEXICO CITY OF CLOVIS Management’s Discussion and Analysis For the Year Ended June 30, 2011 Proprietary funds. The City of Clovis’ proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. General Fund Budgetary Highlights There were no major differences between the original budget and the final amended budget. Detailed budget performance is examined through the Statement of Revenues, Expenditures and Changes in Fund Balance for the general fund found on page 17. Actual general fund expenditures were $2,301,226 less than the final budget amount (favorable variance). This was due primarily to the police department (public safety component) favorable variance of $1,240,259. Capital Asset and Debt Administration Capital assets. The City of Clovis’ amount invested in capital assets for its governmental and business type activities as of June 30, 2011, amounts to $120,506,405 (net of accumulated depreciation). This investment in capital assets includes land, land improvements, buildings, computers, equipment, furniture and fixtures, vehicles, infrastructure and zoo. City of Clovis Capital Assets (In thousands) Governmental Business-type Activities Activities June 30, June 30, June 30, June 30, 2011 2010 2011 2010 Total June 30, 2011 June 30, 2010 Land Land improvements Buildings and improvements Equipment and vehicles Infrastructure Construction in progress $ 3,030 8,048 17,904 7,620 35,177 1,773 3,020 6,388 18,435 7,681 33,090 4,176 4,867 5,789 6,524 2,905 20,747 6,121 4,138 6,043 6,868 3,465 19,893 1,801 7,897 13,837 24,428 10,525 55,924 7,894 7,158 12,431 25,303 11,146 52,983 5,977 Net capital assets $ 73,552 72,790 46,953 42,208 120,505 114,998 Additional information on the City of Clovis’ capital assets can be found in Note 6 on pages 35-37 of this report. Long-term debt. At the end of the current fiscal year, the City of Clovis had total debt from outstanding bonds of $10,400,000 and loans and notes outstanding of $9,912,805. City of Clovis Long-term Debt (In thousands) Governmental Activities June 30, June 30, 2011 2010 Revenue bonds Notes payable Business-type Activities June 30, June 30, 2011 2010 Total June 30, June 30, 2011 2010 $ 3,640 1,317 4,205 1,390 6,760 8,596 8,013 1,404 10,400 9,913 12,218 2,794 $ 4,957 5,595 15,356 9,417 20,313 15,012 8 STATE OF NEW MEXICO CITY OF CLOVIS Management’s Discussion and Analysis For the Year Ended June 30, 2011 Additional information on the City of Clovis’ long-term debt can be found in Note 7 on pages 37-41 of this report. Economic Factors and Next Year’s Budget City of Clovis is located in Curry County. Curry County, like the rest of urban New Mexico, has a strong and balanced economy. Employment in the area has been stable for the past three years. City of Clovis receives approximately 66 percent of its annual operating budget for general fund from gross receipts taxes. Request for Information This financial report is designed to provide a general overview of the City of Clovis’ finances for all those with an interest in the government’s finances. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to the Office of the Finance Director, City of Clovis, P.O. Box 760, Clovis, New Mexico 88101. See Note 1 for requests for information in the separate financial statements of the component unit. 9 BASIC FINANCIAL STATEMENTS STATE OF NEW MEXICO CITY OF CLOVIS Statement of Net Assets As of June 30, 2011 Governmental Activities Assets Current assets Cash and investments Receivables: Property taxes receivable Intergovernmental Other receivables Customer receivables Notes receivable Prepaids Inventory Internal balances $ 105,793 4,977,558 1,436,131 619,059 66,872 232,805 Total current assets Noncurrent assets Restricted cash and investments Notes receivable, noncurrent portion Bond discounts, net of amortization of $8,055 Bond issuance costs, net of amortization of $16,535 Capital assets Less: accumulated depreciation Total noncurrent assets Total assets 21,515,853 $ Primary Government Business-type Activities 13,305,979 549,033 815,765 90,819 70,207 (232,805) Total Component Units 34,821,832 1,707,070 105,793 5,526,591 1,436,131 815,765 709,878 137,079 - 4,631 46,210 10,486 - 28,954,071 14,598,998 43,553,069 1,768,397 - 1,304,919 1,304,919 480,117 - 18,795 - 18,795 - 38,582 129,266,739 (55,714,068) 82,285,484 (35,331,750) 38,582 211,552,223 (91,045,818) 7,425,858 (5,242,346) 73,610,048 48,258,653 121,868,701 2,663,629 102,564,119 62,857,651 165,421,770 4,432,026 The accompanying notes are an integral part of the financial statements. 10 STATE OF NEW MEXICO CITY OF CLOVIS Statement of Net Assets (continued) As of June 30, 2011 Governmental Activities Liabilities Current liabilities Accounts payable Accrued payroll expenses Accrued compensated absences Accrued interest Meter and other refundable deposits Deferred revenue Current portion of bonds and notes payable $ Total current liabilities Noncurrent liabilities Accrued compensated absences Meter and other refundable deposits Landfill closure liability Bond premium, net of amortization of $309 Bonds and notes payable Total noncurrent liabilities Total liabilities Net Assets Invested in capital assets, net of related debt Restricted for: Debt service Capital projects and improvements Other purposes Unrestricted Total net assets Total liabilities and net assets $ Primary Government Business-type Activities Total Component Units 129,951 826,305 712,049 12,844 131,383 10,496 658,277 1,355,286 117,206 169,535 29,840 1,304,919 1,114,222 1,485,237 943,511 881,584 42,684 131,383 1,315,415 1,772,499 30,087 35,809 11,738 13,321 - 2,481,305 4,091,008 6,572,313 90,955 383,411 - 2,447,480 383,411 2,447,480 2,255 71,197 - 4,299,005 4,682,416 11,744 14,241,301 16,700,525 11,744 18,540,306 21,382,941 73,452 7,163,721 20,791,533 27,955,254 164,407 68,595,389 31,598,211 100,193,600 2,183,512 225,715 1,605,321 567,854 24,406,119 10,467,907 225,715 1,605,321 567,854 34,874,026 395,599 1,688,508 95,400,398 42,066,118 137,466,516 4,267,619 102,564,119 62,857,651 165,421,770 4,432,026 The accompanying notes are an integral part of the financial statements. 11 $ $ 3,052,728 4,544,690 3,095,728 834,862 8,475,280 44,340,523 6,439,558 14,477,546 8,824,049 5,138,476 809,131 176,483 35,865,243 Expenses General Revenues: Taxes Property taxes, levied for general purposes Gross receipts taxes Gasoline and motor vehicle taxes Franchise taxes Cigarette and lodger's taxes Licenses and fees Fines, forfeitures, and penalties Investment income Miscellaneous income Gain/(loss) on sale of capital assets Transfers Total general revenues and transfers Change in net assets Beginning net assets Restatement Beginning net assets as restated Ending net assets Component Units: Housing Authority Business-type Activities: Solid Waste Wastewater Airport Total business type activities Total Primary Government Primary Government General government Public safety Public works Culture and recreation Health and welfare Interest on long-term debt Total governmental activities Functions/Programs 3,114,717 5,420,083 2,886,754 1,518,520 350,690 664,119 5,420,083 Operating Grants and Contributions 362,550 4,250 728,661 2,522,021 3,254,932 5,891,768 2,636,836 2,636,836 Capital Grants and Contributions $ $ 1,622,346 22,669,543 558,791 1,239,375 546,923 538,338 435,636 73,951 2,995,923 (178,112) (689,610) 29,813,104 4,545,751 90,854,647 90,854,647 95,400,398 - (25,267,353) (3,434,791) (10,861,852) (6,187,213) (4,503,027) (103,987) (176,483) (25,267,353) 464,843 189,112 455,591 (15,234) 689,610 1,783,922 3,585,853 38,480,265 38,480,265 42,066,118 - (673,429) 650,608 1,824,752 1,801,931 1,801,931 - 1,622,346 23,134,386 558,791 1,239,375 546,923 538,338 435,636 263,063 3,451,514 (193,346) 31,597,026 8,131,604 129,334,912 129,334,912 137,466,516 - (673,429) 650,608 1,824,752 1,801,931 (23,465,422) (3,434,791) (10,861,852) (6,187,213) (4,503,027) (103,987) (176,483) (25,267,353) Net (Expense) Revenue and Changes in Net Assets Primary Government Business Governmental Type Activities Activities Total The accompanying notes are an integral part of these financial statements. 12 324,758 3,867,011 3,017,675 137,593 7,022,279 9,563,250 118,013 2,097,174 284,759 41,025 2,540,971 Charges for Services Program Revenues STATE OF NEW MEXICO CITY OF CLOVIS Statement of Activities For the Year Ended June 30, 2011 1,971 62,251 (290) 813,229 813,229 3,454,390 3,454,390 4,267,619 749,297 - - Component Unit STATE OF NEW MEXICO CITY OF CLOVIS Balance Sheet Governmental Funds As of June 30, 2011 01, 18 General Fund Assets Cash and investments Restricted cash and investments Receivables: Property taxes Intergovernmental Other receivables Inventory Prepaid insurance Due from other funds Cap Projects Eastern NM Rural Water Street Construction 87 Other Non-Major Governmental Funds Total 4,193,059 - 108,667 334,608 12,704,857 658,938 16,897,916 1,102,213 105,793 2,574,189 162,429 6,247 356,656 2,028,289 1,260,236 - 395,373 - 1,986,387 35,074 60,626 261,821 - 105,793 6,216,185 197,503 66,873 618,477 2,028,289 $ 9,426,662 1,368,903 729,981 15,707,703 27,233,249 $ 105,392 694,233 131,383 67,476 10,496 - 1,238,628 - 24,558 122,377 556,857 129,950 816,610 131,383 67,476 10,496 1,795,485 Total liabilities 1,008,980 1,238,628 - 703,792 2,951,400 Fund balances Nonspendable Restricted Committed Assigned Unassigned 362,903 8,054,779 108,667 21,608 729,981 - 322,447 684,902 11,639,515 2,551,973 (194,926) 685,350 1,523,550 11,639,515 2,551,973 7,881,461 Total fund balances 8,417,682 130,275 729,981 15,003,911 24,281,849 9,426,662 1,368,903 729,981 15,707,703 27,233,249 Total assets Liabilities and fund balances Liabilities Accounts payable Accrued payroll expenses Other accrued expenses Accrued compensated absences Deposits held in trust Deferred property tax revenue Other deferred revenue Due to other funds Total liabilities and fund balances $ Major Funds 36+38+93 94+97+99 Spec Revenue $ The accompanying notes are an integral part of these financial statements. 13 STATE OF NEW MEXICO CITY OF CLOVIS RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE TO STATEMENT OF NET ASSETS As of June 30, 2011 Amounts reported for governmental activities in the statement of net assets are different because: Fund balances - total governmental funds $ Capital assets used in governmental activities are not financial resources and, therefore, are not reported in the funds 24,281,849 73,520,803 Delinquent property taxes not collected within sixty days after year end are not considered "available" revenues and are considered to be deferred revenue in the fund financial statements, but are considered revenue in the Statement of Activities 67,476 Other long-term assets are not available to pay for current period expenditures and therefore, are deferred in the funds: Bond discounts Bond issuance costs 18,795 38,582 Other liabilities are not due and payable in the current period and, therefore, are not reported in the funds: Accrued interest (12,844) Internal service funds assets and liabilities included governmental activities in the statement of net assets 3,535,822 Long-term liabilities, including bonds payable, are not due and payable in the current period and, therefore, are not reported in the funds Current accrued compensated absences Noncurrent accrued compensated absences Current bonds and notes payable Bonds payable Differences due to rounding Net assets of governmental activities The accompanying notes are an integral part of these financial statements. 14 (709,391) (383,411) (658,277) (4,299,005) (1) $ 95,400,398 STATE OF NEW MEXICO CITY OF CLOVIS Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds For the Year Ended June 30, 2011 01, 18 General Fund Revenues: Taxes: Property Gross receipts Gasoline and motor vehicle Other Intergovernmental: Federal operating grants Federal capital grants State operating grants State capital grants Charges for services Fines, forfeitures, and penalties Licenses and fees Investment income Miscellaneous Total revenues $ Expenditures: Current: General government Public safety Public works Culture and recreation Health and welfare Capital outlay Debt service: Principal Interest Total expenditures Excess (deficiency) of revenues over expenditures Other financing sources (uses) Transfers in/(out) Proceeds from sale of capital asset Proceeds from debt issuance Total other financing sources (uses) Net change in fund balance Beginning fund balance Ending fund balance $ Major Funds 36+38+93 94+97+99 Spec Revenue Cap Projects Eastern NM Rural Water Street Construction Other Non-major Governmental Funds 87 Total 1,613,698 13,773,220 26,863 1,243,943 - - 8,896,321 531,928 542,356 1,613,698 22,669,541 558,791 1,786,299 184,181 9,849 2,336,319 157,626 463,502 23,447 503,120 20,335,768 388,528 2,089,164 2,477,692 473,138 2,023,898 2,890 9,761 2,509,687 1,240,315 428,707 713,696 728,124 15,213 484,064 47,805 1,048,470 14,676,999 1,813,024 901,845 2,812,709 2,023,898 3,064,443 172,839 947,566 74,142 1,561,351 40,000,146 3,664,580 13,175,822 283,655 2,251,958 327,879 591,514 2,547,563 - 53,587 2,673,887 1,643,853 407,955 2,186,266 2,591,473 301,044 2,845,243 5,308,433 13,583,777 5,071,071 4,843,431 628,923 6,110,644 20,295,408 73,086 4,023 2,624,672 2,727,474 565,000 174,249 10,715,083 638,086 178,272 36,362,637 3,637,509 40,360 (146,980) (217,787) 3,961,916 990,354 14,825 1,005,179 - 14,486 14,486 (1,746,670) 273 (1,746,397) 1,045,539 (146,980) (203,301) 2,215,519 2,910,777 7,372,143 8,417,682 277,255 130,275 933,282 729,981 12,788,392 15,003,911 21,371,072 24,281,849 The accompanying notes are an integral part of these financial statements. 15 (741,830) 15,098 (726,732) STATE OF NEW MEXICO CITY OF CLOVIS Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities For the Year Ended June 30, 2011 Amounts reported for governmental activities in the statement of activities are different because: Net change in fund balances - total governmental funds $ 2,910,777 Governmental funds report capital outlays as expenditures. However in the statement of activities, the cost of those assets is allocated over their estimated useful lives and reported as depreciation expense: Capital expenditures recorded in capital outlay Capital assets received as donations Capital expenditures recorded in other expense lines 6,110,644 477,475 69,189 Depreciation expense on capital assets is reported in the government-wide statement of activities and changes in net assets, but they do not require the use of current financial resources. Therefore depreciation expense is not reported as expenditure in governmental funds. (5,712,685) In the Statement of Activities, a loss is recorded for assets that are removed from service that are not fully depreciated. Thus, the change in net assets differs from the change in fund balance by the amount of loss recorded for deleted capital assets. (178,112) Internal service funds are used by management to charge the cost of certain activities, such as insurance to individual funds. The net change of the internal service funds resulting from transactions not recorded with governmental funds. 267,853 The issuance of long-term debt (e.g. bonds, notes, capital leases) provides current financial resources to governmental funds, while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction, however, has any effect on net assets. Also, governmental funds report the effect of premiums and similar items when debt is first issued, whereas these amounts are deferred and amortized in the statement of activities: Amortization of bond discounts Amortization of bond issuance costs Decrease in accrued interest Increase in noncurrent and current accrued compensated absences Issuance of long-term debt Principal payments on bonds and notes payable (1,343) (2,756) 1,788 (43,813) 638,086 Other reclassifications are necessary to convert from the modified accrual basis of accounting to the accrual basis of accounting to show the revenue earned from the current year's tax levy. 8,648 Due to rounding - Change in net assets of governmental activities The accompanying notes are an integral part of these financial statements. 16 $ 4,545,751 STATE OF NEW MEXICO CITY OF CLOVIS General Fund Statement of Revenues, Expenditures and Changes in Fund Balance Budget (Non-GAAP Budgetary Basis) and Actual For the Year Ended June 30, 2011 Actual (Non-GAAP Budgetary Basis) Budgeted Amounts Original Revenues: Taxes Property Gross receipts Gasoline and motor vehicle Other Intergovernmental income: Federal operating grants Federal capital grants State operating grants State capital grants Charges for services Licenses and fees Fines, forfeitures and penalties Investment income Miscellaneous Total revenues $ Variances Favorable (Unfavorable) Final Final to Actual 1,555,188 12,265,240 38,000 950,900 1,555,188 12,465,240 38,000 950,900 1,629,641 13,694,197 26,399 1,009,897 74,453 1,228,957 (11,601) 58,997 562,290 9,850 1,869,850 354,000 178,000 34,000 129,000 17,946,318 768,550 18,636 1,894,786 354,000 178,000 34,000 458,720 18,716,020 548,767 9,849 2,363,702 463,502 157,626 23,447 954,059 20,881,086 (219,783) (8,787) 468,916 109,502 (20,374) (10,553) 495,339 2,165,066 3,983,925 14,080,683 375,000 2,248,939 443,991 486,942 4,146,995 14,492,105 375,000 2,449,675 451,408 756,520 3,649,851 13,251,846 283,655 2,263,756 329,855 591,514 497,144 1,240,259 91,345 185,919 121,553 165,006 21,619,480 22,671,703 20,370,477 2,301,226 Excess (deficiency) of revenues over expenditures (3,673,162) (3,955,683) 510,609 4,466,292 Other financing sources (uses) Designated cash Transfers in Transfers out Total other financing sources (uses) 2,517,273 2,796,880 (1,640,991) 3,673,162 2,957,182 2,905,255 (1,906,754) 3,955,683 Net change in fund balance - Fund balance - beginning of year Expenditures: Current: General government Public safety Public Works Culture and recreation Health and welfare Capital outlay Debt Service: Principal Interest Total expenditures Fund balance - end of year $ 2,897,108 (1,906,754) 990,354 (2,957,182) (8,147) (2,965,329) - 1,500,963 1,500,963 - - 7,372,143 7,372,143 - - 8,873,106 8,873,106 Net change in fund balance (GAAP) $ Adjustments to revenue for tax accruals and other miscellaneous revenue accruals (530,497) Adjustments to expenditures for accrued wages, compensated absences, insurance and function expenditures Net change in fund balance (non-GAAP budgetary basis) The accompanying notes are an integral part of these financial statements. 17 1,045,539 75,073 $ 1,500,963 STATE OF NEW MEXICO CITY OF CLOVIS Eastern New Mexico Rural Water Special Revenue Fund Statement of Revenues, Expenditures and Changes in Fund Balance Budget (Non-GAAP Budgetary Basis) and Actual For the Year Ended June 30, 2011 Budgeted Amounts Original Revenues: Taxes: Property Gross receipts Gasoline and motor vehicle Other Intergovernmental: Federal operating grants Federal capital grants State operating grants State capital grants Charges for services Licenses and fees Investment income Miscellaneous Total revenues $ Variances Favorable (Unfavorable) Actual (Non-GAAP Budgetary Basis) Final Final to Actual - - - 3,620,662 3,620,662 388,529 3,620,662 4,009,191 388,528 1,179,642 1,568,170 (1) (2,441,020) (2,441,021) 3,445,891 - 3,834,420 - 2,624,791 - 1,209,629 - 73,090 3,476 3,522,457 94,694 4,024 3,933,138 94,694 4,023 2,723,508 1 1,209,630 Excess (deficiency) of revenues over expenditures 98,205 76,053 (1,155,338) (1,231,391) Other financing sources (uses) Designated cash Transfers in Transfers out Proceeds from debt issuance Total other financing sources (uses) 747,234 234,482 981,716 747,234 234,482 981,716 1,079,921 1,057,769 - - 277,255 - - (643,601) Expenditures: Current: General government Public safety Public works Culture and recreation Health and welfare Capital outlay Debt service: Principal Interest Total expenditures Net change in fund balance Fund balance - beginning of year Fund balance - end of year $ Net change in fund balance (GAAP) - 234,482 234,482 (747,234) (747,234) (920,856) (1,978,625) 277,255 (1,701,370) $ Adjustments to revenue for applicable accruals and deferrals 675,041 Adjustments to expenditures for applicable accruals and payments Net change in fund balance (non-GAAP budgetary basis) The accompanying notes are an integral part of these financial statements. 18 (146,980) 98,835 $ (920,856) STATE OF NEW MEXICO CITY OF CLOVIS Statement of Fund Net Assets Proprietary Funds As of June 30, 2011 2 Solid Waste Governmental Activities Business-Type Activities Enterprise Funds Major Funds 10 12 Wastewater Airport Total 48, 53, 54 Internal Service Funds Assets Current assets Cash and investments $ Receivables: Intergovernmental Other receivables Customer receivables, net of allowance Notes receivable, current portion Inventory Prepaids Total current assets Noncurrent assets Notes receivable, noncurrent portion Capital assets Less: accumulated depreciation Total noncurrent assets Total Assets 4,152,279 9,153,700 - 13,305,979 3,515,725 78,315 443,586 21,100 46,560 4,741,840 372,179 49,107 20,639 9,595,625 470,718 23,620 494,338 549,033 815,765 70,207 90,819 14,831,803 581 3,516,306 16,000,877 (7,218,235) 8,782,642 $ 13,524,482 1,304,919 44,722,403 (21,384,913) 24,642,409 34,238,034 21,562,204 (6,728,602) 14,833,602 15,327,940 1,304,919 82,285,484 (35,331,750) 48,258,653 63,090,456 85,244 (53,376) 31,868 3,548,174 78,020 127,928 7,149 467,521 680,618 1,026,123 31,263 19,817 22,691 1,304,919 646,701 3,051,514 329,163 7,923 21,790 232,805 591,681 1,355,286 117,206 169,535 29,840 1,304,919 232,805 1,114,222 4,323,813 9,694 2,658 12,352 2,447,480 489,371 13,751,930 - 2,447,480 14,241,301 - 2,936,851 3,617,469 11,744 13,763,674 16,815,188 591,681 11,744 16,700,525 21,024,338 12,352 8,782,642 1,124,371 9,907,013 8,938,859 8,483,987 17,422,846 14,833,602 (97,343) 14,736,259 32,555,103 9,511,015 42,066,118 31,868 3,503,954 3,535,822 $ 13,524,482 34,238,034 15,327,940 63,090,456 3,548,174 Liabilities and Net Assets Liabilities: Current liabilities Accounts payable $ Accrued payroll expenses Accrued compensated absences Accrued interest Deferred revenue Due to other funds Current portion of bonds and notes payable Current portion of capital leases Total current liabilities Noncurrent liabilities Landfill closure Bonds and notes payable Bond premium, net of amortization of $309 Total noncurrent liabilities Total liabilities Net Assets: Invested in capital assets, net of related debt Unrestricted net assets Total net assets Total Liabilities and Net Assets The accompanying notes are an integral part of these financial statements. 19 STATE OF NEW MEXICO CITY OF CLOVIS Statement of Revenues, Expenses and Changes in Fund Net Assets Proprietary Funds For the Year Ended June 30, 2011 2 Solid Waste Operating revenues: Charges for services $ Governmental Activities Business-Type Activities Enterprise Funds Major Funds 10 12 Wastewater Airport Total 48, 53, 54 Internal Service Funds 3,867,011 3,017,675 137,593 7,022,279 725,291 Total operating revenues 3,867,011 3,017,675 137,593 7,022,279 725,291 Operating expenses: General and administrative Personnel services Contractual services Supplies and purchased power Maintenance and materials Utilities Depreciation Miscellaneous 262,966 1,812,134 562,399 1,007,950 38,449 799,062 - 40,726 728,687 78,636 412,240 272,116 1,235,617 11,106 182,602 107,834 36,178 508,248 - 303,692 2,723,423 641,035 1,528,024 346,743 2,542,927 11,106 492,486 79,085 4,928 - Total operating expenses 4,482,960 2,779,128 834,862 8,096,950 576,499 (697,269) (1,074,671) 148,792 Operating income (loss) Non-operating revenues (expenses): Gain/loss on disposal of capital assets State nonoperating grants Interest income Interest expense Gross receipts and other taxes Miscellaneous Total non-operating revenues (expenses) Federal capital grants Transfers in Transfers out Net capital grants and transfers (615,949) 238,547 (10,735) 4,250 93,557 (61,730) 464,843 67,759 (4,499) 93,417 (316,600) 357,087 2,522,021 2,138 30,745 (15,234) 2,526,271 189,112 (378,330) 464,843 455,591 7,301 67,352 557,944 129,405 2,554,904 3,242,253 74,653 497,581 (259,482) 728,661 447,948 (161,809) 165,372 - 728,661 1,110,901 (421,291) 51,308 (6,900) 238,099 1,014,800 165,372 1,418,271 44,408 180,094 1,382,752 2,023,007 3,585,853 267,853 Net assets, beginning of year Restatement 9,726,919 - 16,040,094 - 12,713,252 - 38,480,265 - 3,267,969 - Beginning net assets, as restated 9,726,919 16,040,094 12,713,252 38,480,265 3,267,969 9,907,013 17,422,846 14,736,259 42,066,118 3,535,822 Change in net assets Net assets, end of year $ The accompanying notes are an integral part of these financial statements. 20 STATE OF NEW MEXICO CITY OF CLOVIS Proprietary Funds Statement of Cash Flows For The Year Ended June 30, 2011 2 Solid Waste Cash flows from operating activities Receipts from customers and users $ Receipts from interfund services provided Payments to suppliers and employees Net cash provided (used) by operating activities 3,886,669 (3,611,400) 275,269 Cash flows from noncapital financing activities: Transfers from other funds Operating transfers to other funds Payments received from note receivable Tax receipts Intergovernmental receipts Miscellaneous income 497,581 (262,171) 464,843 4,250 67,759 Net cash provided (used) by noncapital financing activities Governmental Activities Business-Type Activities Enterprise Funds Major Funds 10 12 Wastewater Airport Total 48, 53, 54 Internal Service Funds 3,102,203 (641,469) (292,276) (611) 6,696,596 (4,253,480) 725,291 (565,485) 2,460,734 (292,887) 2,443,116 159,806 447,948 (150,000) 122,691 728,661 234,084 398,177 2,522,021 30,743 1,343,706 (412,171) 122,691 464,843 3,254,932 332,586 51,306 (8,206) 67,353 110,453 772,262 1,383,384 2,950,941 5,106,587 Cash flows from capital and related financing activities: Acquisitions and construction of capital assets Proceeds from sale of capital assets Principal paid on notes payable Interest paid on notes payable Long-term debt proceeds (160,352) 3,563 (447,048) (61,730) - (4,354,051) 13,708 (614,217) (316,600) 7,012,054 (2,815,453) - (7,329,856) 17,271 (1,061,265) (378,330) 7,012,054 - Net cash provided (used) by capital and related financing activities (665,567) 1,740,894 (2,815,453) (1,740,126) - Cash flows from investing activities: Interest income 93,557 93,417 2,138 189,112 7,301 Net cash provided by investing activities 93,557 93,417 2,138 189,112 7,301 475,521 5,678,429 5,998,689 277,560 Net increase in cash and temporary investments $ (155,261) The accompanying notes are an integral part of these financial statements. 21 STATE OF NEW MEXICO CITY OF CLOVIS Proprietary Funds Statement of Cash Flows For The Year Ended June 30, 2011 2 Solid Waste Net increase in cash and cash equivalents-previous page $ Cash and investments June 30, 2010 Cash and investments June 30, 2011 $ Reconciliation of operating income (loss) to net cash provided (used) by operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided (used) by operating activities: Depreciation expense (Increase) decrease in: Accounts receivable Inventory Prepaids (Decrease) increase in: Accounts payable Accrued payroll Deferred revenue Compensated absences Accrued interest Estimated landfill postclosure costs Net cash provided (used) by operating activities $ Non-cash transfer of capital assets Wastewater Airport 48, 53, 54 Internal Service Funds Total 475,521 5,678,429 (155,261) 5,998,689 277,560 3,676,758 3,475,271 155,261 7,307,290 3,238,165 4,152,279 9,153,700 - 13,305,979 3,515,725 238,547 (697,269) (1,074,671) 508,248 2,542,927 (615,949) 799,062 $ Governmental Activities Business-Type Activities Enterprise Funds Major Funds 10 12 1,235,617 148,792 4,928 19,658 (3,381) (5,221) 84,528 (18,611) (1,977) (429,869) (2,713) (325,683) (21,992) (9,911) (4,791) 9,058 (3,767) 80,600 1,026,123 (1,866) (122,691) 3,596 17,468 - 329,163 (1,022) 575 - 1,355,286 (7,679) (122,691) 13,229 13,701 80,600 2,460,734 (292,887) 2,443,116 159,806 - - 1,306 275,269 2,689 (11,809) The accompanying notes are an integral part of these financial statements. 22 (29) 6,097 18 - STATE OF NEW MEXICO CITY OF CLOVIS Statement of Fiduciary Assets and Liabilities Agency Funds As of June 30, 2011 Cash and investments $ 48,031 Total assets $ 48,031 Liabilities Deposits held in trust $ 48,031 Total liabilities $ 48,031 The accompanying notes are an integral part of these financial statements. 23 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 NOTE 1 – Summary of Significant Accounting Policies The City of Clovis (City) was incorporated during 1909 under the laws of the State of New Mexico. The City operates under an elected Mayor-Council form of government and provides the following services as authorized by its charter: public safety (police and fire), streets, sanitation, health and social services, culture-recreation, public improvements, planning and zoning, water supply, airport operations, and general government administrative services. This summary of significant accounting policies of the City is presented to assist in the understanding of the City’s financial statements. The financial statements and notes are the representation of the City’s management who is responsible for their integrity and objectivity. The financial statements of the City have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) as applied to government units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial reporting principles. The financial statements have incorporated all applicable GASB pronouncements as well as Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins of the Committee on accounting procedures issued on or before November 30, 1989 unless those pronouncements conflict with or contradict GASB pronouncements. Governments also have the option of following subsequent private-sector guidance for their government-wide financial statements, subject to the same limitation. The City has elected not to follow subsequent private-sector guidance. The more significant of the government’s accounting policies are described below. A. Financial Reporting Entity In evaluating how to define the City, for financial reporting purposes, management has considered all potential component units. The decision to include any potential component units in the financial reporting entity was made by applying the criteria set forth in GASB No. 14 and No. 39. Blended component units, although legally separate entities, are in substance part of the government’s operations. Each discretely presented component unit is reported in a separate column in the government-wide financial statements to emphasize that it is legally separate from the government. The basic-but not the only-criterion for including a potential component unit within the reporting entity is the governing body’s ability to exercise oversight responsibility. The most significant manifestation of this ability is financial interdependency. Other manifestations of the ability to exercise oversight responsibility include, but are not limited to, the selection of governing authority, the designation of management, the ability to significantly influence operations, and accountability for fiscal matters. A second criterion used in evaluating potential component units is the scope of public service. Application of this criterion involves considering whether the activity benefits the government and/or its citizens. A third criterion used to evaluate potential component units for inclusion or exclusion from the reporting entity is the existence of special financing relationships, regardless of whether the government is able to exercise oversight responsibilities. Finally, the nature and significance of a potential component unit to the primary government could warrant its inclusion within the reporting entity. Based upon the application of these criteria, the following is a brief review of each potential component unit addressed in defining the City’s reporting entity. Discreetly Presented Component Unit City of Clovis Housing and Redevelopment Agency, Inc. (The Agency) – This component unit has a separately elected and/or appointed board and provides services to residents, generally within the geographic boundaries of the government. The component unit’s activities include enterprise funds as detailed on pages 10 thru 12 in the City’s financial reports. 24 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 Separately issued financial statements may be obtained directly from the Agency’s administrative office by writing to Clovis Housing and Redevelopment Agency, Inc., 2101 W. Grand Ave., Clovis, New Mexico 87901. B. Government-wide and fund financial statements The government-wide financial statements (i.e., the statement of net assets and the statement of activities and changes in net assets) report information on all of the non-fiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements. Governmental activities, which normally are supported by taxes and intergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges for support. In the government-wide Statement of Net Assets, both the governmental and business-type activities columns (a) are presented on a consolidated basis by column, (b) and are reported on a full accrual, economic resource basis, which recognized all long-term assets and receivables as well as long-term debt and obligations. The City’s net assets are reported in three parts – invested in capital assets, net of related debt; restricted net assets; and unrestricted net assets. The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers or applicants who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment and 2) grants and contributions that are restricted to meeting the operational or capital requirements of a particular function or segment. Taxes and other items not properly included among program revenues are reported instead as general revenues. Separate financial statements are provided for governmental funds, proprietary funds, and fiduciary funds, if applicable, even though the latter are excluded from the government-wide financial statements. Major individual governmental funds and major individual enterprise funds are reported as separate columns in the fund financial statements. C. Measurement focus, basis of accounting, and financial statement presentation The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting, as are the proprietary fund and fiduciary fund financial statements, if applicable. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Property taxes are recognized as revenues in the year for which they are billed. Grants and similar items are recognized as revenue as soon as all eligibility requirements of time, reimbursement and contingencies imposed by the provider have been met. Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the government considers property tax revenues to be available if they are collected within 60 days of the end of the current fiscal period. Grant revenues are considered available if they are collected within 90 days of the end of the current fiscal period. Expenditures generally are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures, as well as expenditures related to compensated absences and claims and judgments, are recorded only when payment is due. 25 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 Property taxes, franchise taxes, licenses, and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Sales and use taxes are classified as derived tax revenues and are recognized as revenue when the underlying exchange takes place and the revenues are measurable and available. Grants and similar items are recognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Only the portion of special assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the government. The City reports the following major governmental fund: The General Fund is the government’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Eastern NM Rural Water Fund (Authorized by Commission at Budget Approval) To account for federal and state grants which are to be used for the study, design and implementation of a water system project to deliver 24,000 acre-feet of water per annum from the Ute Reservoir located on the Canadian River to 9 communities and 3 counties in eastern New Mexico. Street Construction To account for expenditures relating to state-shared projects, such as the repairs and maintenance of City streets, which are part of the State arterial system. Funding is from the Local Government road fund with matching funds transferred from the City of Clovis General Fund. The government reports the following major proprietary funds: The Solid Waste Fund accounts for the provision of garbage and refuse removal services to the residents of the City of Clovis. All activities necessary to provide such services are accounted for in this fund. The Wastewater Fund accounts for the wastewater system service provided for residents of the City of Clovis, including administration, operation, maintenance, debt service, billing and collection. The Airport Fund accounts for the activities of the City’s airport. All activities necessary to provide such services are accounted for in this fund. Additionally, the government reports the following fund types: Internal Service Funds account for workers compensation, unemployment insurance services, and property and liability self-insurance provided to other departments of the government. Services are provided on a cost reimbursement basis. Fiduciary Funds account for monies collected and expended to veterinarians on behalf of City residents who have had their unvaccinated animals detained and for the municipal court service used to account for bonds collected from alleged law violators. As a general rule the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are payments-in-lieu of taxes and other charges between the government’s enterprise funds and various other functions of the government. Elimination of these charges would distort the direct costs and program revenues reported for the various functions concerned. 26 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 Program revenues included in the Statement of Activities are derived directly from the program itself or from parties outside the City’s taxpayer or citizenry, as a whole; program revenues reduce the cost of the function to be financed from the City’s general revenues. Program revenues are categorized as (a) charges for services, which include revenues collected for fees and use of City services, facilities, etc., (b) program-specific operating grants, which includes revenues received from state and federal sources are to be used as specified within each program grant agreement, and (c) program-specific capital grants and contributions, which include revenues from state sources to be used for capital projects. Internally dedicated resources are reported as general revenues rather than as program revenues. Likewise, general revenues include all taxes D. Assets, Liabilities and Net Assets or Fund Equity Proprietary funds distinguish operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund’s principal ongoing operations. The principal operating revenues of the airport, solid waste and wastewater funds are charges to customers for sales and services. Operating expenses for enterprise funds include the cost of sales and services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as non-operating revenues and expenses. E. Deposits and Investments The City’s cash and cash equivalents are considered to be cash on hand, demand deposits and short-term investments with original maturities of three months or less from the date of acquisition. State statutes authorize the City to invest in Certificates of Deposit, obligations of the U.S. Government, and the State Treasurer’s Local Government Investment Pool. Investments for the City are reported at fair value. The State Treasurer’s Pool operates in accordance with appropriate state laws and regulations. The reported value of the pool is the same as the fair value of the pool shares. F. Receivables and Payables Interfund activity is reported as loans, services provided, reimbursements, or transfers. Loans are reported as interfund receivables and payables as appropriate and are subject to elimination upon consolidation. Services provided, deemed to be at market or near market rates, are treated as revenues and expenditures/expenses. Reimbursements are when one fund incurs a cost, charges the appropriate benefiting fund and reduces its related cost as a reimbursement. All other interfund transactions are treated as transfers. Transfers between governmental or between proprietary funds are netted as part of the reconciliation to the government-wide financial statements. Advances between funds, as reported in the fund financial statements, are offset by a fund balance reserve account in applicable governmental funds to indicate that they are not available for appropriation and are not expendable available financial resources. All receivables are reported at their gross value and, where appropriate, are reduced by the estimated portion that is expected to be uncollectible. In the government-wide and governmental fund financial statements, delinquent property taxes are recorded as revenue when levied, net of estimated refunds and uncollectable amounts. Property taxes are levied on November 1 based on the assessed value of property as listed on the previous January 1 and are due in two payments by November 10th and April 10th. Property 27 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 taxes uncollected after May 10th are considered delinquent. The taxes attach as an enforceable lien on property as of January 1st. G. Inventories and Prepaid Items Inventories in governmental funds consist of expendable supplies held for consumption, and are valued at cost using a first-in, first-out (FIFO) method. Expendable supplies are accounted for using the consumption method. Proprietary fund inventories are recorded at the lower of cost or market on a first-in, first-out basis, and consist of operating supplies held for use in operations and are recorded as expenditures when consumed rather than when purchased. Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both the government-wide and fund financial statements. H. Capital Assets Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, and similar items), are reported in the applicable governmental or businesstype activities columns in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of one year. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Pursuant to the implementation of GASB Statement No. 34, the historical cost of infrastructure assets, (retroactive to 1979) are included as part of the governmental capital assets reported in the government wide statements. Information technology equipment including software is being capitalized and included in furniture, fixtures and equipment in accordance with NMAC 2.20.1.9 C (5). Donated capital assets are recorded at estimated fair market value at the date of donation. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. The total interest expense capitalized by the City during the current fiscal year was $0. No interest was included as part of the cost of capital assets under construction. Property, plant, and equipment of the primary government are depreciated using the straight line method over the following estimated useful lives: Asset Type Land Construction in progress Land improvements Buildings and improvements Infrastructure Equipment and vehicles Years Perpetuity Perpetuity 40 40 25 3-10 I. Accrued Expenses Accrued expenses are comprised of the payroll expenditures based on amounts earned by the employees through June 30, 2011, along with applicable PERA and Retiree Health Care. 28 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 J. Deferred Revenues There are two types of deferred revenue. Under both the accrual and modified accrual basis of accounting, revenue may be recognized only when it is earned. If assets are recognized in connection with a transaction before the earnings process is complete, those assets must be offset by a corresponding liability for deferred revenue (commonly referred to as unearned revenue). The other type of deferred revenue is “unavailable revenue.” Under the modified accrual basis of accounting, it is not enough that revenue has been earned if it is to be recognized as revenue of the current period. It must also be susceptible to accrual (measurable and available to finance expenditures of the current fiscal period). If assets are recognized in connection with a transaction, but those assets are not yet available to finance expenditures of the current fiscal period, then the assets must be offset by a corresponding liability for deferred revenue. K. Compensated Absences City employees are entitled to certain compensated absences based on their employment classification and length of employment. With minor exceptions, the City allows 40-hour workweek employees to accumulate unused sick leave to a maximum of 1,000 hours. 24-hour shift employees can accumulate up to 1,344 hours. Earned vacation, up to the amount the employee accrues each year, is allowed to be carried over from one calendar year to the next. Upon termination, employees shall receive payment for unused accrued vacation. Employees with service to City in excess of 20 years will be paid for 50% of accumulated sick leave. Full-time, permanent employees are granted vacation benefits in varying amounts to specified maximums depending on tenure with the City. Accumulated unused vacation is payable upon retirement or termination from employment. All vacation pay and applicable accumulated sick leave is accrued when incurred in the government-wide and proprietary fund financial statements. A liability for these amounts is reported in the governmental funds only if they have matured, for example, as a result of employee resignations and retirements. L. Long-term Obligations In the government-wide financial statements and proprietary fund financial statements, longterm debt and other long-term obligations are reported as liabilities in the applicable governmental activities, business-type activities, or proprietary fund type statement of net assets. For bonds issued after GASB 34 was implemented, bond premiums and discounts, as well as issuance costs, are deferred and amortized over the life of the bonds using the effective interest method. Bonds payable are reported net of the applicable bond premium or discount. For fund financial reporting, bond premiums, discounts as well as issuance costs, are recognized in the period the bonds are issued. Bond proceeds are reported as another financing source net of the applicable premium or discount. Issuance costs, even if withheld from the actual net proceeds received, are reported as debt service expenditures. M. Fund Equity Equity is classified as net assets and displayed in three components in the government-wide financial statements and the proprietary funds: x Invested in capital assets, net of related debt – Net assets invested in capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes, or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. x Restricted Net Assets – Consist of net assets with constraints placed on the use either by (1) external groups such as creditors, grantors, contributors, or laws or regulation of other governments; or (2) law through constitutional provisions or enabling legislation. 29 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 x Unrestricted Net Assets – All other net assets that do not meet the definition of “restricted” or “invested in capital assets, net of related debt.” When both restricted and unrestricted resources are available for use, it is the government’s policy to use restricted resources first, then unrestricted resources as they are needed. N. Governmental Fund Balances Beginning with fiscal year 2011, the City implemented GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. This Statement provides more clearly defined fund balance categories to make the nature and extent of the constraints placed on a government’s fund balances more transparent. The Statement only applies to Governmental funds and does not extend to Proprietary fund types. The following classifications describe the relative strength of the spending constraints: x Nonspendable – Amounts not in a spendable form, such as prepaid expenses, inventories, or long-term portion of receivables or property held for resale, if the use of the proceeds from the collection/sale of property held for resale is not otherwise constrained. Nonspendable amounts also includes amounts legally or contractually required to remain intact, such as the principal of a permanent fund. x Restricted – Amounts constrained to specific purposes that are externally imposed or imposed by law through constitutional provisions or enabling legislation (such as taxpayers, grantors, bondholders, and higher levels of government). x Committed – Amounts constrained to specific purposes by the governmental entity’s highest level of decision-making authority (the City Commission). To be reported as committed, amounts cannot be used for any other purpose unless the City Commission takes the same highest level action to remove or change the constraint. x Assigned – Amounts constrained by the City intends to be used for a specific purposes. Intent can be expressed by the governing body (City Commission) or an official or body to which the governing body delegates authority. x Unassigned –Balances available for any purpose. Positive amounts are reported only in the general fund. The City Commission establishes (and modifies or rescinds) fund balance commitments by passage of an ordinance or resolution. This is typically done through adoption and amendment of the budget. A fund balance commitment is further indicated in the budget document as a designation or commitment of the fund (such as for special incentives). Assigned fund balance is established by City through adoption or amendment of the budget as intended for specific purpose (such as the purchase of fixed assets, construction, debt service, or for other purposes). See the Schedule of Fund Balances on page 112 for additional information about fund balances. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, the City considers restricted funds to have been spent first. When an expenditure is incurred for which committed, assigned, or unassigned fund balances are available, the City considers amounts to have been spent first out of committed funds, then assigned funds, and finally unassigned funds, as needed, unless City Commission or the finance department has provided otherwise in its commitment or assignment actions. 30 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 P. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 – Stewardship, Compliance and Accountability Budgetary Information The City Charter establishes the City’s fiscal year as the twelve-month period beginning July 1 and ending June 30. Prior to June 1 the Budget Director submits to management a proposed operating budget of estimated revenues, expenditures, and transfers for the ensuing fiscal year for the General Fund, Special Revenue Funds, Debt Service Funds, Capital Projects Fund and Enterprise Funds. Management subsequently submits the budget (1) to the New Mexico Department of Finance and Administration for review and approval; and (2) to the City Council for review and enactment of a resolution legally adopting the budget. Once approved, the City Council may amend the legally adopted budget when unexpected modifications are required in estimated revenues and appropriations. Additionally, the New Mexico Department of Finance and Administration must approve any amendments to the budget. Each fund’s appropriated budget is prepared on a Non-GAAP cash basis at the detailed line item level. Revenues are budgeted by department and general ledger account. Expenditures are budgeted by department and general ledger account. Expenditures may not exceed appropriations at the fund level. All budget revisions at this level are subject to final review and approval by the City Council. Revisions to the budget were made throughout the year. Encumbrance accounting, under which purchase orders, contracts and other commitments for the expenditure of monies are recorded in order to reserve that portion of the applicable appropriation, is not employed as an extension of formal budgetary integration in the General Fund, Special Revenue Funds, Capital Projects Funds and Debt Service Funds. The accompanying Statements of Revenue, Expenditures and Changes in Fund Balance – Budget (NonGAAP Budgetary Basis) and Actual present comparisons of the legally adopted budget with actual data on a budgetary basis. Since accounting principles applied for purposes of developing data on a budgetary basis differ significantly from those used to present financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) a reconciliation of resultant basis, perspective, equity and timing differences in the excess (deficiency) of revenues and other sources of financial resources for the year ended June 30, 2011 is presented. Reconciliations between the Non-GAAP budgetary basis amounts and the financial statements on the GAAP basis by fund can be found on each individual budgetary statement. 31 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 NOTE 3 – Deposits and Investments The City’s cash, cash equivalents, investments, and collateral pledged are listed on pages 111-112 of this report. A summary of the City’s cash and investments as of June 30, 2011 is as follows: Cash and investments Cash and cash equivalents Cash on hand Cash NMFA Debt Service Fund Subtotal cash and cash equivalents Investments State Treasurer's Investment Pool Certificates of deposit - maturities > 90 days Federal Home Loan Notes - NMFA Reserve Subtotal investments Total cash and investments Cash and investments by fund type Governmental funds Internal service funds Subtotal governmental activities Amount $ $ $ Enterprise funds 7,180 14,138,379 2,492,783 16,638,342 11,924,965 5,843,902 462,654 18,231,521 34,869,863 Amount 18,000,129 3,515,724 21,515,853 13,305,979 Fiduciary funds 48,031 Total cash and investments $ 34,869,863 State statutes authorize the investment of City funds in a wide variety of instruments including certificates of deposit and other similar obligations, state investment pool, money market accounts, and United States Government obligations. All invested funds of the City properly followed State investment requirements as of June 30, 2011. Deposits of funds may be made in interest or non-interest bearing checking accounts in one or more banks or savings and loan associations within the geographical boundaries of the City. Deposits may be made to the extent that they are insured by an agency of the United States or by collateral deposited as security or by bond given by the financial institution. The rate of interest in non-demand interest-bearing accounts shall be set by the State Board of Finance, but in no case shall the rate of interest be less than one hundred percent of the asked price on United States treasury bills of the same maturity on the day of deposit. Excess funds may be temporarily invested in securities which are issued by the State or by the United States government, or by their departments or agencies, and which are either direct obligations of the State or the United States or are backed by the full faith and credit of those governments. According to the Federal Deposit Insurance Corporation, public unit deposits are funds owned by the public unit. Time deposits, savings deposits and interest bearing NOW accounts of an institution in the same state will be insured up to $250,000 in aggregate and separate from the $250,000 coverage for public unit demand deposits at the same institution. 32 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 Custodial Credit Risk – Deposits Custodial credit risk is the risk that in the event of a bank failure the City’s deposits may not be returned to it. The City does not have a deposit policy for custodial credit risk. New Mexico State Statutes require collateral pledged for deposits in excess of the federal deposit insurance to be delivered, or a joint safekeeping receipt be issued, to the City for at least one half of the amount on deposit with the institution. At June 30, 2011, $23,616,604 of the City’s bank balances of $24,790,354 was exposed to custodial credit risk because it was collateralized with collateral held by the pledging bank’s trust department, not in the City’s name. At June 30, 2011, $173,750 was exposed to custodial credit risk because it was not collateralized or insured. For the custodial credit risk of the workers compensation deposit of $72,958 in the NM Self Insurer’s fund and the New Mexico Finance Authority deposit of $2,492,783 with the State Treasurer, see the separately issued financial statements for the NM Municipal Self Insurer’s Fund and the NM Finance Authority available through the New Mexico Office of the State Auditor at www.saonm.org. Custodial Credit Risk – Investments For an investment, custodial credit risk is the risk that, in the event of the failure of the counterparty, the City will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The City does not have an investment policy for custodial credit risk. At June 30, 2011, the City’s investment balances were exposed to custodial credit risk as follows. The local short-term investment fund, along with other public monies in the State Treasurer's investment account including amounts held by the NM Self Insurer’s fund, is invested in repurchase agreements secured at 102% by U.S. Government Securities. The State Treasurer has the responsibility to pledge collateral at 102% of investment balances for the City. All investing is performed in accordance with State Statutes and the City Charter. For more information, refer to separately issued financial statements for the State Treasurer, which disclose the collateral pledged to secure the State Treasurer's cash and investments. The US Treasury Mutual Funds are all backed by the full faith and credit of the U.S. government and are therefore insured against loss. The types of collateral allowed are limited to direct obligations of the United States Government and all bonds issued by any agency, City or political subdivision of the State of New Mexico. Interest Rate Risk The City does not have a formal policy limiting investment maturities to manage its exposure to fair value losses from increasing interest rates. In addition, the City places no limit on the amount it may invest in any one issuer. More than 5 percent of the City’s investments are in the State LGIP, certificates of deposit, and Federal Reserve notes. These investments are 65%, 32%, and 3%, respectively, of the City’s total investments. The City’s investments at June 30, 2011 include the following: Investments New MexiGROW LGIP Certificates of deposit U.S. Government Obligations: Federal Home Loan Notes - NMFA Reserve Total Fair Value 11,924,965 5,843,902 Maturity WAM - 36 days 12 months <90 days $ 462,654 18,231,521 The LGIP’s portfolio’s weighted average maturity (WAM) is a key determinant of the tolerance of a fund’s investment to rising interest rates. In general, the longer the WAM, the more susceptible the fund is to rising interest rates. The LGIP portfolio’s weighted average maturity (WAM) was 36 days as of June 30, 2011. 33 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 The New MexiGROW Local Government Investment Pool’s (LGIP) investments are valued at fair value based on quoted market prices as of the valuation date. The LGIP is not SEC registered. The New Mexico State Treasurer is authorized to invest the short-term investment funds, with the advice and consent of the State Board of Finance, in accordance with Sections 6-10-10 I through 6-10-10 P and Sections 6-1010.1 A and E, NMSA 1978. The pool does not have unit shares. Per Section 6-10-10.1F, NMSA 1978, at the end of each month all interest earned is distributed by the State Treasurer to the contributing entities in amounts directly proportionate to the respective amounts deposited in the fund and the length of time the fund amounts were invested. Participation in the LGIP is voluntary. Collateral pledged to secure State Treasurer cash and investments is reported in the State Treasurer’s separately issued financial statements. Credit Risk As of June 30, 2011, the City’s investments were rated as follows: Investment Type New MexiGROW LGIP Certificates of deposit U.S. Government Obligations: Federal Home Loan Notes - NMFA Reserve Rating AAAm No rating AAA NOTE 4 – Receivables Receivables as of June 30, 2011, including the applicable allowances for uncollectible accounts, are as follows: Governmental Funds Accounts Taxes (Property, GRT, etc) Grants: State Federal Other Subtotal Less: Allowance for uncollectibles Net receivables $ $ Proprietary Funds Accounts Taxes (Property, GRT, etc) Grants: State Federal Subtotal Less: Allowance for uncollectibles Net receivables $ $ (01) General Fund 2,454,414 2,679,982 20,000 5,154,396 (2,311,985) 2,842,411 (02) Solid Waste 593,602 78,315 671,917 (150,016) 521,901 (36, 38, 93) (94, 97, 99) Eastern NM Rural Water 1,260,236 1,260,236 1,260,236 (10) Wastewater 504,653 504,653 (132,474) 372,179 (87) Street Repair Nonmajor Funds - 1,598,301 395,373 395,373 395,373 388,086 35,074 2,021,461 2,021,461 (12) Airport 151 90,816 379,902 470,869 (151) 470,718 Total Proprietary 1,098,406 78,315 90,816 379,902 1,647,439 (282,641) 1,364,798 Total Governmental 2,454,414 4,278,283 1,655,609 388,086 55,074 8,831,466 (2,311,985) 6,519,481 Internal Service Funds - In accordance with GASB No. 33, the property tax revenues totaling $77,973 that were not collected within the period of availability have been reclassified as deferred revenue in the governmental fund financial statements. 34 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 NOTE 5 – Interfund Balances and Transfers The City recorded interfund receivable/payable to reflect a temporary loan between funds. The purpose of the loans were to cover cash shortages until grant reimbursements could be obtained. All interfund receivables/payables are expected to repaid within one year. Interfund balances as of June 30, 2011, are as follows: Due from other funds General Fund General Fund General Fund General Fund General Fund General Fund General Fund Fund # 01 01 01 01 01 01 01 Due to other funds ENMR Water Grant - Major Fund - Special Revenue Fund Dept of Justice Fund - Non-major Spec Rev Fund Golf Course Fund - Non-major Spec Rev Fund ARRA Stimulus Fund - Non-major Spec Rev Fund Drug Control Fund - Non-major Spec Rev Fund Clovis Recycling Fund - Non-major Spec Rev Fund Airport Fund - Major Fund - Proprietary Fund Fund # 38 $ 96 19 83 98 76 12 $ Amount 1,238,628 3,500 200,000 263,195 80,931 9,231 232,805 2,028,290 The City recorded interfund transfers to reflect transfers of cash in accordance with the budget. Transfers and payments within the City are substantially for the purpose of subsidizing operating functions and funding capital projects, primarily street projects. All transfers made during the year were considered routine and were consistent with the general characteristics of the City’s transfer policy. The composition of interfund transfers during the year ended June 30, 2011 is as follows: Transfers Out General 01 87 02 General Street Const. Solid Waste $ Transfers In 10, 11, 44 12 67, 68 Wastewater Airport 161,151 Non-Major 48, 53, 54 Governmental 1,695,603 Internal Service 51,308 Total 1,908,062 - - - Solid Waste 259,482 - - - - - - 259,482 Wastewater 158,638 - 3,171 - - - - 161,809 2,486,208 14,486 494,410 447,948 4,221 - - 3,447,273 1,900 - - - - 5,000 - 6,900 2,906,228 14,486 497,581 447,948 165,372 1,700,603 51,308 5,783,526 Non-Major Governmental Internal Service Total $ Of the transfers in to the general fund shown above, a total of $7,812 was related to the transfer of capital assets into the general fund from other fund types. These amounts are not shown on the governmental fund financial statements, but are reflected on the government-wide financial statements. NOTE 6 – Capital Assets A summary of capital assets and changes occurring during the year ended June 30, 2011, including those changes pursuant to the implementation of GASB Statement No. 34, follows. Land and construction in progress are not subject to depreciation. 35 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 Governmental Activities includes Internal Service Funds Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated Balance June 30, 2010 $ Additions and Transfers In Deletions and Transfers Out 3,019,938 4,175,693 7,195,631 10,551 1,259,373 1,269,924 Capital assets being depreciated: Land improvements Buildings and improvements Equipment and vehicles Infrastructure Total capital assets being depreciated Total capital assets 9,812,324 25,577,429 19,074,283 61,718,189 116,182,225 123,377,856 412,110 1,229,557 3,752,983 5,394,650 6,664,574 (821,290) (821,290) (821,290) Less accumulated depreciation: Land improvements Buildings and improvements Equipment and vehicles Infrastructure Total accumulated depreciation Total capital assets net of depreciation (3,423,842) (7,142,547) (11,393,829) (28,627,838) (50,588,056) 72,789,800 (516,069) (1,872,059) (1,105,872) (2,223,613) (5,717,613) 946,961 628,080 628,080 (193,210) $ Business-Type Activities Capital assets not being depreciated: Land Construction in progress Total capital assets not being depreciated Balance June 30, 2010 $ Additions and Transfers In 4,137,890 1,800,868 5,938,758 729,000 6,122,497 6,851,497 Capital assets being depreciated: Land improvements Buildings and improvements Equipment and vehicles Infrastructure Total capital assets being depreciated Total capital assets 8,457,129 10,632,691 9,848,523 40,325,009 69,263,352 75,202,110 15,132 215,220 248,008 478,360 7,329,857 Less accumulated depreciation: Land improvements Buildings and improvements Equipment and vehicles Infrastructure Total accumulated depreciation Total capital assets net of depreciation (2,413,663) (3,764,618) (6,383,404) (20,431,997) (32,993,682) 42,208,428 (254,152) (358,799) (733,819) (1,196,157) (2,542,927) 4,786,930 $ 36 - Deletions and Transfers Out - Reclass and Adjustments (3,662,092) (3,662,092) 2,175,688 928,685 45,599 557,719 3,707,691 45,599 (36,479) (36,479) 9,120 Reclass and Adjustments Balance June 30, 2011 3,030,489 1,772,974 4,803,463 11,988,012 26,918,224 19,528,149 66,028,891 124,463,276 129,266,739 (3,939,911) (9,014,606) (11,908,100) (30,851,451) (55,714,068) 73,552,671 Balance June 30, 2011 (1,801,888) (1,801,888) 4,866,890 6,121,477 10,988,367 (200,884) (200,884) (200,884) (45,599) 1,801,888 1,756,289 (45,599) 8,457,129 10,647,823 9,817,260 42,374,905 71,297,117 82,285,484 168,380 168,380 (32,504) 36,479 36,479 (9,120) (2,667,815) (4,123,417) (6,912,364) (21,628,154) (35,331,750) 46,953,734 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 Depreciation expense for the year ended June 30, 2011 was charged to the following functions and funds: Governmental activities: General government Public safety Public works Culture and recreation Health and welfare Total $ 272,246 729,284 3,848,065 696,907 166,183 5,712,685 Internal Service Fund Total governmental activities 4,928 5,717,613 Business type activities: Solid Waste Wastewater Airport Total business-type activities 799,062 1,235,617 508,248 2,542,927 $ NOTE 7 – Long-term Debt Long-term liability activity for the year ended June 30, 2011, was as follows: Balance 30-Jun-10 Governmental Activities: Gross receipts tax revenue bonds Series 1999 Series 2005 Total bonds payable Additions Retirements Balance 30-Jun-11 Due Within One Year 1,295,000 2,910,000 4,205,000 - (415,000) (150,000) (565,000) 880,000 2,760,000 3,640,000 430,000 155,000 585,000 NMFA Notes payable 2009 ENMRWUA No 84-WTB 2009 ENMRWUA No 56-WTB 2010 ENMRWUA - WTB Total notes payable 415,160 114,236 860,976 1,390,372 - (22,577) (6,212) (44,301) (73,090) 392,583 108,024 816,675 1,317,282 22,637 6,228 44,412 73,277 Compensated Absences 1,051,647 701,141 (657,328) 1,095,460 712,049 6,647,019 701,141 (1,295,418) 6,052,742 1,370,326 Governmental-activities long-term liabilities $ $ 37 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 Balance 30-Jun-10 Business-type Activities: Notes Payable NM Environmental Dept. NM Finance Authority Total notes payable Additions Retirements Balance 30-Jun-11 Due Within One Year 8,012,848 1,403,940 9,416,788 - (374,217) (447,048) (821,265) 7,638,631 956,892 8,595,523 381,701 467,521 849,222 Gross receipts tax revenue bonds Series 2010 Total bonds payable - 7,000,000 7,000,000 (240,000) (240,000) 6,760,000 6,760,000 265,000 265,000 Compensated Absences 156,307 114,264 (101,036) 169,535 169,535 9,573,095 7,114,264 (1,162,301) 15,525,058 1,283,757 Business-type-activities long-term liabilities $ $ In prior years, the general fund has typically been used to liquidate long-term compensated absence liabilities. Bonds payable for governmental funds at June 30, 2011 are comprised of the following: Sales Tax Revenue Bonds Series February 1, 1999 Original issue: Principal: Interest: $ Rates: 1-Feb-99 5,000,000 June 1 & December 1 3.85% to 4.30% Sales Tax Revenue Bonds Series June 1, 2005 $ 1-Jun-05 3,580,000 June 1 & December 1 2.50% to 4.50% The February 1, 1999 Gross Receipts Tax Revenue Bonds, Series 1999, were issued to defray, in part (i) the cost of constructing, purchasing, furnishing, equipment (including, specifically, the purchase of computer hardware and software for use in taking care of “Year 2000” issues that the City may have), rehabilitating, making addition to or making improvement to one or more public buildings or purchasing or improving any ground relate thereto. The Bonds are being issued pursuant to Sections 3-31-1 through 3-31-12 NMSA 1978, as amended. The 1999 Bonds and all payments of principal, premium, and interest thereon whether at maturity or on a redemption date shall be paid with pledged revenues payable from the revenues distributed to the City by the New Mexico Taxation and Revenue Department pursuant to Sections 7-9-4, NMSA 1978, as amended, 7-1-6.1 and 7-1-6.4 NMSA, as amended and 7-1-6.15 NMSA, 1978 as amended. The bonds mature on June 1, 2013. The annual requirements to amortize the 1999 Bond Issue outstanding as of June 30, 2011, including interest payments are as follows: Fiscal Year Ending June 30, 2012 2013 2014 2015 2016 Principal $ $ 430,000 450,000 880,000 38 Interest 37,400 19,125 56,525 Total Debt Service 467,400 469,125 936,525 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 The June 1, 2004 Gross Receipts Tax Revenue Bonds, Series 2004, were issued to defray, in part (i) the cost of constructing, purchasing, furnishing, equipping or making improvement to the public buildings of the City, including a City Convention Center and (ii) paying all costs incidental to the issuance of the bonds. The Bonds are being issued pursuant to Sections 3-31-1 through 3-31-12 NMSA 1978, as amended. The 2004 Bonds and all payments of principal, premium, and interest thereon whether at maturity or on a redemption date shall be paid with pledged revenues payable from the revenues distributed to the City by the New Mexico Taxation and Revenue Department pursuant to Sections 7-9-4, NMSA 1978, as amended, 7-1-6.1 and 7-1-6.4 NMSA, as amended and 7-1-6.15 NMSA, 1978 as amended. The bonds mature on June 1, 2025. The annual requirements to amortize the 2004 Bond Issue outstanding as of June 30, 2011, including interest payments are as follows: Fiscal Year Ending June 30, 2012 2013 2014 2015 2016 2017-2021 2022-2026 Principal $ $ 155,000 160,000 165,000 170,000 175,000 995,000 940,000 2,760,000 Interest 113,419 107,219 100,819 94,219 86,569 321,244 101,320 924,809 Total Debt Service 268,419 267,219 265,819 264,219 261,569 1,316,244 1,041,320 3,684,809 The annual requirements to amortize the combined revenue bond issues outstanding at June 30, 2011, including interest payments are as follows: Fiscal Year Ending June 30, 2012 2013 2014 2015 2016 2017-2021 2022-2026 Principal $ $ 585,000 610,000 165,000 170,000 175,000 995,000 940,000 3,640,000 Interest 150,819 126,344 100,819 94,219 86,569 321,244 101,320 981,334 Total Debt Service 735,819 736,344 265,819 264,219 261,569 1,316,244 1,041,320 4,621,334 The City of Clovis as fiscal agent for the Eastern New Mexico Rural Water Authority (ENMRWA) entered into two separate loan/grant agreements with the NM Finance Authority in September 2008 for the planning, design and engineering of a regional water supply project to provide potable water from Ute Reservoir on the Canadian River to the participating entities of the ENMRWA for municipal and industrial purposes. The terms of the first agreement call for a grant from the NMFA for $1,125,000 along with a loan totaling $125,000. The terms of the second agreement call for a grant from the NMFA for $1,817,120 along with a loan totaling $454,280. The interest/administrative fee on both notes is 0.25%. Both notes mature on June 1, 2028. The note principal, interest, and administrative fees will be paid for with pledged revenues from the net utility revenues or the City’s wastewater utility system. In March 2010, the City entered into a loan/grant agreement with the NM Finance Authority for activity associated with the ENMRWA project. The terms of the agreement call for a grant from the NMFA Water Trust Board for $3,620,662 along with a loan totaling $905,166. The interest/administrative fee on the note is 0.25% and the maturity date on the note is June 1, 2029. The note principal, interest, and 39 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 administrative fees will be paid for with pledged revenues from the net utility revenues or the City’s wastewater utility system. In December 2010, the City entered into a loan/grant agreement with the NM Finance Authority for activity associated with the ENMRWA project. The terms of the agreement call for a grant from the NMFA Water Trust Board for $3,982,500 along with a loan totaling $442,500. The interest/administrative fee on the note is 0.25% and the maturity date on the note is June 1, 2030. The note principal, interest, and administrative fees will be paid for with pledged revenues from the net utility revenues or the City’s wastewater utility system. As of June 30, 2011, no amounts had been received related to this agreement. The annual requirements to amortize the combined NMFA notes outstanding at June 30, 2011, including interest payments are as follows: Fiscal Year Ending June 30, 2012 2013 2014 2015 2016 2017-2021 2022-2026 2027-2031 Interest & Admin Fees Principal $ $ 73,277 73,456 73,641 73,826 74,011 372,845 377,542 198,687 1,317,285 3,309 3,127 2,942 2,758 2,573 10,083 5,400 968 31,160 Total Debt Service 76,586 76,583 76,583 76,584 76,584 382,928 382,942 199,655 1,348,445 Bonds payable for proprietary funds at June 30, 2011 are comprised of the following: Sales Tax Revenue Bonds Series September 21, 2010 Original issue: Principal: Interest: $ Rates: 21-Sep-10 7,000,000 June 1 & December 1 2.00% to 4.00% The September 21, 2010 Gross Receipts Tax Revenue Bonds, Series 2010, were issued to defray, in part (i) the cost of constructing, purchasing, furnishing, equipping or making improvement to the City’s waste water treatment plant and (ii) paying all costs incidental to the issuance of the bonds. The Bonds are being issued pursuant to Sections 3-31-1 through 3-31-12 NMSA 1978, as amended. The 2010 Bonds and all payments of principal, premium, and interest thereon whether at maturity or on a redemption date shall be paid with pledged revenues payable from the revenues distributed to the City by the New Mexico Taxation and Revenue Department pursuant to Sections 7-9-4, NMSA 1978, as amended, 7-1-6.1 and 7-16.4 NMSA, as amended and 7-1-6.15 NMSA, 1978 as amended. The bonds mature on June 1, 2025. 40 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 The annual requirements to amortize the proprietary fund bonds outstanding as of June 30, 2011, including interest payments are as follows: Fiscal Year Ending June 30, 2012 2013 2014 2015 2016 2017-2021 2022-2026 2027-2031 $ $ Principal Interest 265,000 270,000 275,000 280,000 290,000 1,595,000 1,925,000 1,860,000 6,760,000 212,538 207,238 201,838 196,338 190,738 828,688 553,125 184,313 2,574,816 Total Debt Service 477,538 477,238 476,838 476,338 480,738 2,423,688 2,478,125 2,044,313 9,334,816 The notes payable of the City’s proprietary funds as of June 30, 2011 are comprised of the following: Solid waste loan with the NM Finance Authority dated May 1, 1999, with annual principal installments ranging from $153,737 to $489,371 due May 1 annually. Interest rates range from 3.15% to 4.68%, due semi-annually on May 1, and November 1. The loan $ matures on May 1, 2013. Wastewater loan with the NM Environment Department dated, May 19, 2006 with annual principal installments of $318,652 due annually on the date of completion of the project. Interest rate at 2.0%. The loan matures on June 30, 2015. Less current portion Total outstanding long-term debt - proprietary funds $ 956,892 7,638,631 8,595,523 (849,222) 7,746,301 The annual requirements to amortize the proprietary fund loans outstanding as of June 30, 2011, including interest payments are as follows: Fiscal Year Ending June 30, 2012 2013 2014 2015 2016 2017-2021 2022-2026 2027-2031 Principal $ $ 849,222 878,706 397,122 405,064 413,166 2,193,133 2,421,396 1,037,714 8,595,523 Interest 164,570 136,801 107,437 101,224 94,887 443,204 196,311 24,431 1,268,865 Total Debt Service 1,013,792 1,015,507 504,559 506,288 508,053 2,636,337 2,617,707 1,062,145 9,864,388 NOTE 8 – Risk Management The City is exposed to various risks of loss related to torts; thefts of, damage to, and destruction of assets; errors and omissions; and natural disasters for which the government carries commercial insurance. The City established limited risk management programs for workers’ compensation (as discussed below) and unemployment claims. Premiums for unemployment claims are paid to the appropriate internal service fund by all other funds and are available to pay claims, claims reserves, and administrative costs of the program. 41 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 Effective January 1, 1991, the City established a limited risk management program for workers compensation. The City contracted with the New Mexico Self Insurer Fund (Fund) as administrator for this program. At the beginning of each policy period, the City pays a retention premium which covers expenses of the Fund, including, but not limited to, reinsurance expenses, claims adjusting, rating and underwriting, safety and loss control, reporting and administration. In the retention rating year (1/1/91 – 1/1/92), the City paid a “loss fund deposit” to the Fund equal to 15% of the estimated “manual premium”. This deposit is retained by the Fund for the benefit of the City in paying all applicable claims and costs for all policy periods. Each anniversary date, the deposit will be reviewed and revised if necessary. The City’s self-insured specific retention is $250,000 per accident, with aggregate of 150% of the “manual premium” for a policy period. The City accounts for this program in its Internal Service Fund, Workers Compensation. The Workers Compensation Fund allocates the cost of providing claim servicing and claim payments by charging a “premium” to each participating governmental and business-type activities fund, based on each fund’s percentage of the estimated “manual premium”. This charge considers recent trends in actual claims experience and makes provision for catastrophic loss. The Workers Compensation fund liabilities are reported when it is probable that a loss has occurred and the amount of that loss can be reasonably estimated. Liabilities include an amount for claims that have been incurred but not reported (IBNRs). The result of the process to estimate the claims liability is not an exact amount as it depends on many complex factors, such as inflation, changes in legal doctrines, and damage awards, Accordingly, claims are re-evaluated periodically to consider the effects of inflation, recent claim settlement trends (including frequency and amount of payout), and other economic and social factors. The estimate of the claims liability also includes amounts for incremental claim adjustment expenses related to specific claims and other claims adjustment expenses regardless of whether allocated to specific claims. Estimated recoveries, for example from salvage or subrogation, are another component of the claims liability estimate. Settlements have not exceeded coverage for the current fiscal year. The City continues to carry commercial insurance for all other risks. The City is in the process of establishing a fund for property and liability self-insurance. As of June 30, 2011, no claims activity had taken place in the fund. The only activity for the year ended June 30, 2011 consisted of an operating transfer from the general fund. NOTE 9 – PERA Pension Plan Plan Description: Substantially all of the City’s full-time employees participate in a public employee retirement system authorized under the Public Employees Retirement Act (Chapter 10, Article 11 NMSA 1978.) The Public Employee Retirement Association (PERA) is the administrator of the plan, which is a cost-sharing, multiple-employer defined benefit retirement plan. The plan provides for retirement, disability benefits, survivor benefits, and cost-of-living adjustments to plan members and beneficiaries. PERA issues a separate, publicly available financial report that includes financial statements and required supplementary information for the plan. That report may be obtained by writing to PERA, P. O. Box 2123, Santa Fe, New Mexico 87504-2123. The report is also available on PERA’s website at www.pera.state.nm.us. Funding Policy: Plan members are required to contribute the following percentages of their gross salary: 16.3% for law enforcement and fire protection employees; and 15.65% for municipal employees. The City was required to contribute the following percentages of the gross covered salary: 18.5% for law enforcement and fire protection plan members; and 11.65% for municipal plan members. The contribution requirements of plan members and the City of Clovis are established in State Statute under Chapter 10, Article 11 NMSA 1978. The requirements may be amended by acts of the legislature. The City of Clovis’ contributions to PERA for the years ending June 30, 2011, 2010 and 2009 were approximately $564,727, $547,065, and $476,156, respectively, which equal the amount of the required contributions for all years. 42 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 NOTE 10 – Pension Plan The City contributes to a defined contribution pension plan adopted under the provision of Internal Revenue Code Section 401. A defined contribution pension plan provides pension benefits in return for services rendered, provides an individual account for each participant, and specifies how contributions to the individual’s account are to be determined instead of specifying the amount of benefits the individual is to receive. Under a defined contribution pension plan, the benefits a participant will receive depend solely on the amount contributed to the participant’s account and the returns earned on investment on those contributions. As established by local ordinance, all employees of the City participating in the Deferred Compensation Plan are eligible to participate. The City is required to contribute 14% of the employee’s gross earnings. Contributions by the City belong to the participant upon retirement or termination, provided the vesting requirements have been satisfied. The vesting provisions for all new employees hired on or after July 8, 1990, are as follows: 30% after 3 years of completed service 40% after 4 years of completed service 100% after 5 years of completed service All employees hired prior to July 8, 1990, were 100% vested on the date of hire. For the years ended June 30, 2011, 2010, and 2009, the City’s required and actual contributions totaled $1,377,992, $1,393,291, and $1,365,178, respectively. NOTE 11 – Deferred Compensation Plan The City offers its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457. The Plan is administered by International City/County Management Association. The plan, available to all full-time City employees, permits them to defer a portion of their salary until future years. The deferred compensation is not available to employees until termination, retirement, death, or unforeseeable emergency. Employees are mandated to contribute a minimum of 3% of their gross salary but may elect to contribute up to 100% of their salary up to a maximum dollar amount of $16,500 per year into the plan. Eligible employees may also make catch-up contributions totaling $5,500 per year. There are employees that are making contributions to the Deferred Compensation Plan. All contributions withheld from participant’s wages by the City have been paid to the plan administrator. Employee contributions withheld and remitted to the plan were $894,976, $825,910 and $827,543 for the years ended June 30, 2011, 2010 and 2009, respectively. NOTE 12 – Post Employment Benefits – State Retiree Healthcare Plan Plan Description: The City of Clovis contributes to the New Mexico Retiree Health Care Fund, a costsharing multiple-employer defined benefit postemployment healthcare plan administered by the New Mexico Retiree Health Care Authority (RHCA). The RHCA provides health care insurance and prescription drug benefits to retired employees of participating New Mexico government agencies, their spouses, dependents, and surviving spouses and dependents. The RHCA Board was established by the Retiree Health Care Act (Chapter 10, Article 7C, NMSA 1978). The Board is responsible for establishing and amending benefit provisions of the healthcare plan and is also authorized to designate optional and/or voluntary benefits like dental, vision, supplemental life insurance, and long-term care policies. Eligible retirees are: 1) retirees who make contributions to the fund for at least five years prior to retirement and whose eligible employer during that period of time made contributions as a participant in 43 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 the RHCA plan on the person’s behalf unless that person retires before the employer’s RHCA effective date, in which the event the time period required for employee and employer contributions shall become the period of time between the employer’s effective date and the date of retirement; 2) retirees defined by the Act who retired prior to July 1, 1990; 3) former legislators who served at least two years; and 4) former governing authority members who served at least four years. The RHCA issues a publicly available stand-alone financial report that includes financial statements and required supplementary information for the postemployment healthcare plan. That report and further information can be obtained by writing to the Retiree Health Care Authority at 4308 Carlisle NE, Suite 104, Albuquerque, NM 87107. Funding Policy: The Retiree Health Care Act (Section 10-7C-13 NMSA 1978) authorizes the RHCA Board to establish the monthly premium contributions that retirees are required to pay for healthcare benefits. Each participating retiree pays a monthly premium according to a service based subsidy rate schedule for the medical plus basic life plan plus an additional participation fee of five dollars if the eligible participant retired prior to the employer’s RHCA effective date or is a former legislator or former governing authority member. Former legislators and governing authority members are required to pay 100% of the insurance premium to cover their claims and the administrative expenses of the plan. The monthly premium rate schedule can be obtained from the RHCA or viewed on their website at www.nmrhca.state.nm.us. The Retiree Health Care Act (Section 10-7C-15 NMSA 1978) is the statutory authority that establishes the required contributions of participating employers and their employees. During the fiscal year ended, June 30, 2011, the statute required each participating employer to contribute 1.666% of each participating employee’s annual salary; each participating employee was required to contribute .8333% of their salary. In the fiscal years ending June 30, 2012 and June 30, 2013 the contribution rates for employees and employers will rise as follows: For employees who are not members of an enhanced retirement plan the contribution rates will be: Fiscal Year FY12 FY13 Employer Contribution Rate 1.834% 2.000% Employee Contribution Rate 0.917% 1.000% For employees who are members of an enhanced retirement plan (state police and adult correctional officer coverage plan 1; municipal police member coverage plans 3, 4 and 5; municipal fire member coverage plan 3, 4 and 5; municipal detention officer member coverage plan 1; and members pursuant to the Judicial Retirement Act [10-12B-1 NMSA 1978]), during the fiscal year ended June 30, 2011, the statute required each participating employer to contribute 2.084% of each participating employee’s annual salary, and each participating employee was required to contribute 1.042% of their salary. In the fiscal years ending June 30, 2012 and June 30, 2013 the contributions rates for both employees and employers will rise as follows: Fiscal Year FY12 FY13 Employer Contribution Rate 2.292% 2.500% Employee Contribution Rate 1.146% 1.250% Also, employers joining the program after 1/1/98 are also required to make a surplus-amount contribution to the RHCA based on one of two formulas at agreed-upon intervals. The RHCA plan is financed on a pay-as-you-go basis. The employer, employee and retiree contributions are required to be remitted to the RHCA on a monthly basis. The statutory requirements for the contributions can be changed by the New Mexico State Legislature. 44 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 For the fiscal years ended June 30, 2011, 2010, and 2009, City of Clovis remitted $210,539, $154,677, and $144,619 in employer contributions, respectively, to the Retiree Health Care Authority. NOTE 13 – Contingencies The City of Clovis participates in a number of federal, state, and county programs that are fully or partially funded by grants received from other governmental units. Expenditures financed by grants are subject to audit by the appropriate grantor government. If expenditures are disallowed due to noncompliance with grant program regulations, the City of Clovis may be required to reimburse the grantor government. As of June 30, 2011, significant amounts of grant expenditures have not been audited by the grantor agencies. Management believes that any disallowed expenditures discovered in subsequent audits, if any, will not have a material effect on any of the individual funds or the overall financial position of the City of Clovis. The City of Clovis is a defendant in various lawsuits. Although the outcome of these lawsuits is not presently determinable, it is the opinion of the City's legal counsel that resolution of these matters will not have a material adverse effect on the financial condition of the City. NOTE 14 – Deficit Fund Balances, Excess of Expenditures Over Appropriations and Designated cash appropriation in excess of available balances Generally accepted accounting principles require disclosures of certain information concerning individual funds including: Deficit fund balances of individual funds: None Excess of expenditures over appropriations: None Designated cash appropriation in excess of available balances. The following funds exceeded approved budgetary authority for the year ended June 30, 2011: None NOTE 15 – Landfill Closure and Post-closure Care State and federal laws and regulations require that the City of Clovis place a final cover on its landfill when closed and perform certain maintenance and monitoring functions at the landfill site for thirty years after closure of the landfill site. In addition to operating expenses related to current activities of the landfill, an expense provision and related liability are being recognized based on the future closure and post-closure care costs that will be incurred near or after the date the landfill no longer accepts waste. The recognition of these landfill closure and post-closure care costs is based on the amount of the landfill used during the year. The total estimated liability for landfill closure costs is $2,447,480 as of June 30, 2011, which is based on the cumulative capacity to date as a percentage of projected capacity at the time of landfill closure. This represents an increase of $80,600 from the prior year. It is estimated that an additional $672,520 will be recognized as closure and post-closure care costs between the balance sheet date and the date the landfill site is expected to close in accordance with State of New Mexico Environmental Division and Federal EPA regulations. Approximately 89.86% of the landfill capacity has been used to date and the estimated remaining landfill life is four years. The estimated total current cost of the landfill closure and post-closure care of $3,120,000 is based on the amount that would be paid if all equipment, facilities, and services required to close, monitor, and maintain the landfill were acquired as of June 30, 2011. However, the actual cost of closure and post-closure care may be higher due to inflation, 45 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 changes in technology, or changes in state and federal landfill laws and regulations. The City of Clovis is required by the State of New Mexico Environmental Regulation Board to demonstrate financial assurance for the closure and post-closure costs. The City of Clovis obtained permanent financing from the NM Finance Authority for landfill expansion, closure, and post-closure care. The agreement establishes terms for use of the proceeds, and repayment of amounts loaned that are more fully discussed in Note 7. In addition, the City has designated funds totaling $2,001,589 to offset the future estimated post-closure liability amounts. NOTE 16 – Leases in the Financial Statements of Lessors Operating leases arise from the leasing of the City’s land and buildings to customers in varying industries in Clovis. Initial lease terms generally range from 12 to 120 months. Leases are cancellable by the Lessee with 30-120 days’ notice as defined by the lease agreement. Depreciation expense for assets subject to operating leases is provided primarily on the straight-line method over the term of the lease in amounts necessary to reduce the carrying amount of the asset to its estimated residual value. Estimated and actual residual values are reviewed on a regular basis to determine that depreciation amounts are appropriate. Depreciation expense for the year ended June 30, 2011 related to land and buildings held as rental property under operating leases is included in depreciation expense of the Airport in the Proprietary Funds Statement of Revenues, Expenses, and Changes in Fund Net Assets. Historical cost and accumulated depreciation as of June 30, 2011 related to land and buildings held as rental property under operating leases is included in property, plant and equipment of the Airport in the Proprietary Funds Statement of Net Assets. NOTE 17–Operating Leases The reporting entity has entered into a number of operating leases, which contain cancellation provisions and are subject to annual appropriations. The rent expenditures for these leases were primarily from the General Fund. Future minimum lease payments are: Fiscal Year Ending June 30, 2012 2013 2014 2015 2016 $ $ Amount 287,174 334,067 141,526 69,800 832,567 Lease expenditures for the year ended June 30, 2011 were approximately $567,664. NOTE 18 – Commitments Commitments for engineering and construction projects relating to construction or major repairs in progress aggregated approximately $7,894,451 as of June 30, 2011. The estimated total cost of the projects is $16,932,718 and as of the year ended June 30, 2011, the percentage of completion of the existing projects varies. These projects will be paid in future periods as work is performed. Payment will be made with proceeds remaining from past bond issues, operating revenues, and future grants to be received. NOTE 19 – Restricted Net Assets The government-wide statement of net assets reports $15,842,559 of restricted assets, all of which is restricted by enabling legislation. For descriptions of the related enabling legislation for special revenue, debt service and capital project funds, see schedules in the supplementary information section of this report. 46 STATE OF NEW MEXICO CITY OF CLOVIS Notes to Financial Statements For the Year Ended June 30, 2011 NOTE 20 – Surety Bonds The City maintains surety bonds for the following employees in the amounts of coverage listed below: Employee Position Finance Director/City Clerk $ Coverage 50,000 NOTE 21 – Subsequent Events As per the agreement for the creation of the Eastern New Mexico Water Utility Authority (Authority), the City transferred all funds held in the ENMRWA fund (major special revenue fund) as identified in the Governmental Funds Balance Sheet as of July 1, 2011. At that time all assets/liabilities were transferred to the Authority and the City no longer held administrative control over the funds. 47 APPENDIX B FORM OF BOND COUNSEL OPINION October ____, 2012 [$9,000,000] City of Clovis, New Mexico Gross Receipts Tax Improvement Revenue Bonds, Series 2012 Ladies and Gentlemen: We have acted as bond counsel to the City of Clovis, New Mexico (the "City") in connection with the issuance and sale by the City of its [$9,000,000] Gross Receipts Tax Improvement Revenue Bonds, Series 2012 (the "Bonds"). The Bonds are issued pursuant to the Constitution and laws of the State of New Mexico (the "State") and Ordinance No. 1985-2012 and adopted by the City Commission on August 16, 2012, as supplemented by Resolution No. __ adopted by the City Commission on September 20, 2012 (collectively, the "Bond Ordinance"). Except as expressly defined herein, capitalized terms used herein have the same meanings as such terms have in the Bond Ordinance. We have examined those portions of the Constitution and the laws of the State and the United States of America relevant to the opinions herein, a certified transcript of proceedings of the Council, the governing body of the City (the "Transcript"), and other proceedings and documents relevant to the authorization and issuance by the City of the Bonds, including the form of the Bonds in the Bond Ordinance. As to the questions of fact material to our opinion, we have relied upon the Transcript and other representations and certifications of public officials furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, and subject to the assumptions and qualifications set forth below, we are of the opinion that, under existing law on the date of this opinion: 1. The Bonds constitute valid and binding special, limited obligations of the City under and in accordance with the Bond Ordinance. 2. The Bond Ordinance has been duly authorized, executed and delivered by the City and the provisions of the Bond Ordinance are valid and binding on the City. 3. As more fully described in the Bond Ordinance, Bonds are payable as to principal and interest, solely from, and are secured by a first lien pledge (but not an exclusive first lien pledge) of Pledged Revenues of the City. The owners of the Bonds have no right to have property taxes levied by the City for the payment of principal and interest on the Bonds and the Bonds do not represent or constitute a debt or pledge of, or a charge against, the general credit of the City. 4. The Bond Ordinance creates the lien on the Pledged Revenues that it purports to create. 5. Under existing laws, regulations, rulings and judicial decisions, interest on the Bonds is excludable from gross income for federal income tax purposes. We are also of the opinion that interest on the Bonds is not a specific preference item for purposes of the alternative minimum tax provisions contained in the Internal Revenue Code of 1986, as amended (the “Code”); however, such interest on the Bonds will be included in the adjusted current earnings of certain corporations. Although we are of the opinion that interest B-1 on the Bonds is excludable from gross income for federal income tax purposes, the accrual or receipt of interest on the Bonds may otherwise affect the federal income tax liability of the recipient. The extent of these other tax consequences will depend upon the recipient’s particular tax status or other items of income or deduction. We express no opinion regarding any such consequences. 6. The Bonds and the income from the Bonds are exempt from all taxation by the State or any political subdivision of the State. The opinions set forth above in Paragraph 5 above are subject to continuing compliance by the City with covenants regarding federal tax law contained in the Bond Ordinance and the proceedings and other documents relevant to the issuance by the City of the Bonds. Failure to comply with these covenants may result in interest on the Bonds being included in gross income retroactive to their date of issuance. The opinions expressed herein are based upon existing legislation as of the date of issuance and delivery of the Bonds, and we express no opinion as of any date subsequent thereto or with respect to any pending legislation. The obligations of the City related to the Bonds are subject to the reasonable exercise in the future by the State and its governmental bodies of the police power inherent in the sovereignty of the State and to the exercise by the United States of the powers (including bankruptcy powers) delegated to it by the United States Constitution. The obligations of the City and the security provided therefor, as contained in the Bond Ordinance, may be subject to general principles of equity which permit the exercise of judicial discretion and are subject to the provisions of applicable bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect. The foregoing opinions represent our legal judgment based upon a review of existing legal authorities that we deem relevant to render such opinions and are not a guarantee of result. As bond counsel, we are passing upon only those matters set forth in this opinion and are not passing upon the accuracy or completeness of any statement made in connection with any sale of the Bonds or upon any tax consequences arising from the receipt or accrual of interest on, or the ownership of, the Bonds except those specifically addressed in Paragraphs 5 and 6 above. Respectfully submitted, B-2 APPENDIX C NOTICE OF SALE $9,000,000 CITY OF CLOVIS, NEW MEXICO GROSS RECEIPTS TAX IMPROVEMENT REVENUE BONDS, SERIES 2012 SALE OF BONDS PLACE, TIME AND METHOD FOR BIDS PUBLIC NOTICE IS HEREBY GIVEN that the City of Clovis, New Mexico (the “City”) will on Thursday, September 20, 2012, at the hour of 11:00 a.m., Mountain Daylight Time, at the offices of RBC Capital Markets, LLC, 6301 Uptown Boulevard N.E., Suite 110, Albuquerque, New Mexico 87110, receive sealed bids and bids received through a certain electronic bidding service and publicly open the same for the purchase of the City’s Gross Receipts Tax Improvement Revenue Bonds, Series 2012 (the “Bonds”) in the aggregate principal amount of $9,000,000. Bids may be submitted as a sealed bid or as an electronic bid using the facilities of PARlTY. Submission of bids is further discussed below. The City Commission of the City (the “Commission”) will hold a regular meeting at North Annex, Clovis-Carver Library, 701 N. Main, Clovis, New Mexico, on September 20, 2012, at 5:15 p.m., Mountain Daylight Time, to award the sale of the Bonds, adopt a sale resolution related thereto and consider any other matters. For purposes of the written sealed bids, and bids received through the electronic bidding process, the time as maintained by PARITY shall constitute the official time. Bids Delivered to the City Sealed bids, plainly marked “Bid for Bonds,” should be addressed to “City Manager, City of Clovis, New Mexico,” and delivered to the City of Clovis, New Mexico, c/o RBC Capital Markets, LLC, 6301 Uptown Boulevard, N.E., Suite 110, Albuquerque, New Mexico 87110, Attention: City Manager, prior to 11:00 a.m., Mountain Daylight Time, on September 20, 2012, the date of the bid opening. Such bids must be submitted on the Official Bid Form, without alteration or interlineation. Electronic Bidding Procedures Any prospective bidder that intends to submit an electronic bid must submit its electronic bid through the facilities of PARITY. Subscription to i-Deal’s BIDCOMP Competitive Bidding System is required in order to submit an electronic bid. The City will neither confirm any subscription nor be responsible for the failure of any prospective bidder to subscribe. An electronic bid made through the facilities of PARlTY shall be deemed an irrevocable offer to purchase the Bonds on the terms provided in this Notice of Bond Sale, and shall be binding upon the bidder as if made by a signed, sealed bid delivered to the City. The City and RBC Capital Market, LLC, shall not be C-1 responsible for any malfunction or mistake made by, or as a result of the use of the facilities of, PARITY, the use of such facilities being the sole risk of the prospective bidder. If any provisions of this Notice of Bond Sale shall conflict with information provided by PARITY as the approved provider of electronic bidding services, this Notice of Bond Sale shall control. Further information about PARITY, including any fee charged, may be obtained from Dalcomp/Parity, 1359 Broadway, 2nd Floor, New York, New York 10018, attention: Eric Washington (212) 849-5021. For information purposes only, bidders are requested to state in their electronic bids the true interest cost to the City, as described under “BASIS OF AWARD” below. All electronic bids shall be deemed to incorporate the provisions of this Notice of Bond Sale and the Official Bid Form. THE BONDS Said Bonds will be dated the date of their initial delivery, will be issued as fully registered bonds in the denomination of $5,000.00 each or any integral multiple thereof. The Bonds will be issued in book-entryonly form through the facilities of The Depository Trust Company, New York, New York and beneficial owners will not receive physical delivery of Bond certificates. The Bonds will mature on June 1 in each of the years and in the principal amounts as follows: Year Principal Amount 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 $1,260,000 1,225,000 1,270,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 405,000 Interest Rate Both principal and interest on the Bonds will be payable in lawful money of the United States of America, and the principal and interest of each bond will be payable by the paying agent/registrar for the Bonds. Such payments will then be distributed to the participating members thereof and by such participating members to the beneficial owners of the Bonds. The Bonds are limited, special obligations of the City payable from and equally and ratably secured solely by a first lien on and pledge of the monthly gross receipts tax revenues from the State of New Mexico, through the Department of Taxation and Revenue, equal to one and two hundred and twenty-five thousandths percent (1.225%) of the gross receipts of persons engaging in business within the City as determined and adjusted under Section 7-1-6.4 NMSA 1978 and the Gross Receipts and Compensating Tax Act, Sections 7-9-1 et seq. NMSA 1978 (the “Pledged Revenues”). C-2 REDEMPTION Bonds maturing on or after June 1, 2023 may be redeemed prior to their scheduled maturities on June 1, 2022 or on any date thereafter, in whole or in part, at the option of the City, with funds derived from any available and lawful source, at the redemption price of par, plus accrued interest to the date fixed for redemption. INTEREST RATE AND BID LIMITATIONS Interest on the Bonds will be payable on June 1, 2013, and semi-annually thereafter on June 1 and December 1 in each year until maturity. The maximum net effective interest rate permitted on said Bonds is ten percent (10%) and no interest rate on any maturity of the Bonds may be greater than ten percent (10%) per annum. It is permissible to bid different or split rates of interest; provided, however, that: (1) no bid shall specify more than one interest rate for each maturity; (2) each interest rate specified must be stated in a multiple of one-eighth (1/8) or onetwentieth (1/20) of one percent (1%) per annum; and (3) the maximum interest rate specified for any maturity may exceed the minimum interest rate specified for any other maturity by no more than two percent (__%). The Bonds will not be sold at a price less than _____% of par (maximum discount of ___% of par). The Bonds will not be sold at a price greater than ____% of par (maximum premium of __%). Each bidder is required to submit an unconditional, written and sealed bid on the Official Bid Form or electronically for all of the bonds specifying the lowest rate or rates of interest and discount or premium, if any, at which such bidder will purchase such bonds. For informational purposes only, each bidder is requested to specify the True Interest Cost on the Bonds stated as a nominal annual percentage rate (see “BASIS OF AWARD” below). Only unconditional bids shall be considered. The Official Bid Form may be obtained from the City’s Financial Advisor (see “FURTHER INFORMATION” below). C-3 BASIS OF AWARD The Bonds will be awarded to the best bidder, considering the interest rate or rates specified and the premium offered, if any, and subject to the right of the City to reject any and all bids and re-advertise. The best bid will be determined and will be awarded on the basis of the True Interest Cost of the Bonds (i.e., using a True Interest Cost method) for each bid received and an award will be made (if any is made) to the responsible bidder submitting the bid which results in the lowest actuarial yield on the Bonds. “True Interest Cost” of the Bonds as used herein means that yield which if used to compute the present worth as of the date of the Bonds of all payments of principal and interest to be made on the Bonds from their date to their respective maturity dates (as specified in the maturity schedule and without regard to the possible optional prior redemption of the Bonds), using the interest rates specified in the bid, produces amount equal to the principal amount of the Bonds plus any premium bid. No adjustment shall be made in such calculation for accrued interest on the Bonds from their date to the date of delivery thereof Such calculation shall be based on a 360-day year consisting of twelve thirty day months and a semiannual compounding interval. The purchaser must pay accrued interest from the date of the Bonds to the date of delivery. The Bonds will not be sold for less than _____% of par, nor will a premium in excess of ____ percent (___%) of par amount of the Bonds be acceptable. The City reserves the privilege of waiving any irregularity or informality in any bid, except time of filing. GOOD FAITH DEPOSIT All bids shall be sealed, except bids received through the PARITY electronic bidding service, and (i) shall include a good faith deposit of $180,000 in the form of cash, cashier’s or treasurer’s check of, or by certified check drawn on, a solvent commercial bank or trust company in the United States of America and payable to “City of Clovis, New Mexico” must accompany any bid or be submitted prior to the submission of such bid or (ii) not later than 3:30p.m., Mountain Daylight Time, on September 20, 2012, and prior to the official award of the Bonds, the successful bidder must send an electronic wire transfer to such account as the City shall specify in immediately available funds a good faith deposit of $180,000. (If such wire transfer is not received from the successful bidder by 3:30 p.m., Mountain Daylight Time, on September 20, 2012, the next best bidder may be awarded the Bonds.) No interest on such good faith deposit will accrue to the successful bidder. The good faith deposit will be applied to the purchase price of the Bonds. The good faith deposit shall be returned for all non-successful bids or if no bid is accepted. If the successful bidder shall fail or neglect to complete the purchase of said Bonds within forty-five (45) days following the acceptance of the bid or within ten (10) days after the bonds are offered for delivery, whichever is later, the amount of the deposit shall be forfeited to the City as liquidated damages and, in that event, the City may accept the bid of the one making the next best bid. If all bids are rejected, the City shall re-advertise said Bonds for sale in the same manner as herein provided for the original advertisement. If there be two or more equal bids and such bids are the best bids received, the City shall determine which bid shall be accepted. TIME OF AWARD AND DELIVERY The City Commission will take action awarding the Bonds or rejecting all bids not later than 24 hours after the expiration of the time herein prescribed for the receipt of the bids. The issuance and sale of the C-4 Bonds is subject to the affirmative vote of a majority of all members of the Commission on the sale resolution authorizing the Bonds. Delivery of the Bonds will be made to the successful bidder through the facilities of The Depository Trust Company, New York, New York, within 60 days of the acceptance of the bid. If for any reason delivery cannot be made within 60 days, the successful bidder shall have the right to purchase said Bonds during the succeeding 30 days upon the same terms, or at the request of the successful bidder, during said succeeding 30 days, the good faith deposit will be returned and such bidder shall be relieved of any further obligation. The successful bidder shall make final payment for the Bonds with Federal Reserve Funds or other funds acceptable to the City for immediate and unconditional credit to the account of the City. It is anticipated that the delivery of the Bonds will be on or about October 3, 2012. FURTHER INFORMATION Information concerning the Bonds, information regarding electronic bidding procedures, bid submission and other matters relating to the Bonds, including printed copies of this Notice of Bond Sale, the Official Bid Form, and the Preliminary Official Statement (the “Preliminary Official Statement”) related to the Bonds may be obtained from the City’s Financial Advisor, RBC Capital Markets, LLC, 6301 Uptown Boulevard, N.E., Suite 110, Albuquerque, New Mexico 87110. This Notice of Bond Sale, the Official Bid Form and the Preliminary Official Statement is available for viewing in electronic format at www.idealprospectus.com. The City has prepared the accompanying Preliminary Official Statement for dissemination to potential purchasers of the Bonds, but will not prepare any other document or version for such purpose except as described below. In addition, for any NASD registered broker-dealers or dealer banks with The Depository Trust Company clearing arrangements who bid on the Bonds are advised that they may either: (a) print out a copy of the Preliminary Official Statement on their own printer or (b) at any time prior to the sale date elect to receive a photocopy of the Preliminary Official Statement in the mail by requesting it from the City’s Financial Advisor. All bidders must review the Preliminary Official Statement and, by submitting a bid for the Bonds, each bidder certifies that such bidder has done so prior to participating in the bidding. The City will agree in the ordinance authorizing the Bonds to provide certain periodic information and notices of material events in accordance with the Securities and Exchange Commission Rule 15c2-12, as described in the Official Statement under “Continuing Disclosure of Information.” The purchaser’s obligation to accept and pay for the Bonds is conditioned upon the delivery to the purchaser or its agent of a certified copy of the ordinance authorizing the Bonds containing the agreement described under such heading. The Preliminary Official Statement is deemed final by the City for purposes of Securities and Exchange Commission Rule 15c2-12(b)(1) except for the omission of the following information: the offering price(s), interest rate(s), selling compensation, aggregate principal amount, principal amount per maturity, delivery dates, any other terms or provisions required by an issuer of such securities to be specified in the winning bid, ratings, other terms of the securities depending on such matters and the identity of the purchaser of the Bonds. The City will furnish to the successful bidder or bidders, acting through a designated senior representative, in accordance with instructions received from such successful bidder(s) in order to comply with the Rule, within seven (7) business days from the sale date an aggregate of 50 copies of the final Official Statement, reflecting interest rates and other terms relating to the initial reoffering of the Bonds. The cost of preparation of the final Official Statement shall be borne by the City, except the cost of any final Official Statements in excess of the number specified above shall be borne by the successful bidder(s). C-5 At the time of payment for and initial delivery of the Bonds, the City will execute and deliver to the purchaser of the Bonds a certificate in the form set forth in the Preliminary Official Statement. LEGAL OPINIONS AND TRANSCRIPT The legality of the Bonds will be approved by Modrall, Sperling, Roehl, Harris & Sisk, P.A. (“Bond Counsel”), whose opinions approving the legality of the Bonds will be furnished to the successful bidder at no cost to the successful bidder. The opinions will state in substance that the issue of the Bonds in the amount aforesaid is valid and legally binding upon the City, payable from and equally and ratably secured solely by a first lien on and pledge of the Pledged Revenues and that interest on the Bonds is excludable from gross income for purposes of federal income tax, all as described in the Preliminary Official Statement. The successful bidder (without cost to such bidder) will also be furnished with a complete transcript of the legal proceedings, including a no-litigation certificate which will state that no litigation is pending to the knowledge of the signer or signers thereof as of the date of the delivery of the Bonds affecting their validity or pledge of the Pledged Revenues for their payment. CERTIFICATION OF ISSUE PRICE In order to provide the District with information required to enable it to comply with certain conditions of the Internal Revenue Code of 1986, as amended, relating to the exemption of interest on the Bonds from the gross income of their owners, the successful bidder will be required to complete, execute, and deliver to the City (on or before the date of delivery of the Bonds) a certification as to the “issue price” of the Bonds substantially in the form accompanying this Notice of Bond Sale. In the event the successful bidder will not re-offer the Bonds for sale or is unable to sell a substantial amount of the Bonds of any maturity by the date of delivery, such certificate may be modified in a manner approved by the City and Modrall, Sperling, Roehl, Harris & Sisk, P.A. Each bidder, by submitting its bid, agrees to complete, execute, and deliver such a certificate by the date of delivery of the Bonds, if its bid is accepted by the City. It will be the responsibility of the successful bidder to institute such syndicate reporting requirements, to make such investigation, or otherwise to ascertain the facts necessary to enable it to make such certification with reasonable certainty. Any questions concerning such certification should be directed to Bond Counsel. In no event will the City fail to deliver the Bonds as a result of the successful bidder’s inability to sell a substantial amount of the Bonds at a particular price prior to delivery. CERTIFICATION OF OFFICIAL STATEMENT At the time of payment for and delivery of the Bonds, the successful bidder will be furnished a certificate, executed by proper officers of the City, acting in their official capacity, to the effect that to the best of their knowledge and belief: (a) the descriptions and statements of or pertaining to City contained in the Official Statement, and any addenda, supplement or amendment thereto, on the date of the Official Statement, on the date of sale of the Bonds and the acceptance of the bids therefor, and on the date of the delivery, were and are true and correct in all material respects; (b) insofar as the City and its affairs, including its financial affairs, are concerned, the Official Statement did not and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (c) insofar as the descriptions and statements, including financial data, of or pertaining to entities, other than the City, and their activities contained in such Official Statement are concerned, such statements and data have been obtained from C-6 sources which the City believes to be reliable and the City has no reason to believe that they are untrue in any material respect; and (d) there has been no material adverse change in the financial condition of City since the date of the last audited financial statements of the City. CUSIP NUMBERS CUSIP identification numbers may be typed or printed on the Bonds, but neither the failure to provide such number on any Bond nor any error with respect thereto will constitute cause for failure or refusal by the purchaser thereof to accept delivery of and to pay for the Bonds in accordance with the terms hereof. All expenses in relation to the CUSIP Service charge for the assignment of said numbers will be the responsibility of and will be paid for by the purchaser. BLUE SKY LAWS The City has not investigated the eligibility of any institution or person to purchase or participate in the underwriting of the Bonds under any applicable legal investment, insurance, banking or other laws. By submitting a bid, the initial purchaser represents that the sale of the Bonds in states other than the state of New Mexico will be made only under exemptions from registration or, wherever necessary, the initial purchaser will register such Bonds in accordance with the securities laws of the state in which the Bonds are offered or sold. The City agrees to cooperate with the initial purchaser, at the initial purchaser’s written request and expense, in registering the Bonds or obtaining an exemption from registration in any state where such action is necessary but will not consent to service of process in any such jurisdiction. Dated at Clovis, New Mexico, this 16th day of August, 2012. Mayor C-7 REQUIRED BID FORMS- PROPOSAL TO PURCHASE OFFICIAL BID FORM City of Clovis, New Mexico c/o RBC Capital Markets, LLC 6301 Uptown Boulevard, N.E., Suite 110 Albuquerque, New Mexico 87110 Attention: City Manager Members of the Board: Pursuant to your “Notice of Bond Sale,” dated August 16, 2012, relating to the City of Clovis, New Mexico (the “City”) Gross Receipts Tax Improvement Revenue Bonds, Series 2012 (the “Bonds”) in the principal amount of $9,000,000, which by reference is made a part hereof, we submit the following bid: For your legally issued Bonds as described in said Notice of Bond Sale, we will pay you par, plus accrued interest, if any, from the date of the Bonds to the date of delivery to us, *plus a cash premium* *less a discount* of $_________________ (complete as appropriate) (the maximum permitted premium is ___% of par and the maximum permitted discount is ____% of par), provided the Bonds bear interest per annum as follows (the Bonds mature on June 1 of each year): Year Principal Amount 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 $1,260,000 1,225,000 1,270,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 405,000 Interest Rate The undersigned has (i) provided *cash*,* a cashier’s or treasurer’s check of *, * a certified check drawn on _______________*, *a solvent commercial bank or trust company in the United States of America*, made payable to the order of the City of Clovis, New Mexico, in the amount of $180,000 or (ii) will, not later than 3:30 p.m., Mountain Daylight Time, on September 20, 2012, and prior to the official award of the Bonds, send an electronic wire transfer to such account as the City shall specify in immediately available funds a good faith deposit of $180,000. Such deposit represents our good faith deposit and is submitted in accordance with the terms set forth in the Notice of Bond Sale. We will pay the CUSIP Service Bureau charge, if any, for the assignment of CUSIP numbers. Bid Form Page 1 The undersigned agrees to complete, execute and deliver to the District, by the date of delivery of the Bonds, a certificate relating to the “issue price” of the Bonds in the form attached to the Notice of Bond Sale. We understand and agree that no more than 50 copies of the final Official Statement, including any amendments or supplements thereto, will be supplied to us at the City’s expense and that any additional copies requested will be subject to a charge to us. By accepting this bid, you agree to provide such copies of the final Official Statement and of any amendments or supplements thereto in accordance with the Notice of Bond Sale, and you undertake your other obligations described therein, as contemplated by Rule 15c2-12 of the Securities and Exchange Commission. Respectfully submitted, By: Authorized Representative *(Strike inapplicable words) For informational purposes only, our calculation of the True Interest Cost is as follows: True Interest Cost: (stated as a nominal annual percentage) % Additionally, for information purposes only, the following is requested: Gross Interest Cost: $ Bond Insurance (if any) At Cost of Bidder: Less Premium Bid: $ Insurance Premium: $ Net Interest Cost: $ Additional Rating (if any) At Cost of Bidder: (Name of Company) (Name of Company) Bid Form Page 2 ACCEPTANCE CLAUSE The above bid is hereby in all things accepted by City of Clovis, New Mexico, this 20th day of September, 2012. Mayor, City of Clovis, New Mexico City Clerk, City of Clovis, New Mexico RETURN OF GOOD FAITH DEPOSIT Return of good faith deposit to us as an unsuccessful bidder on this September ___, 2012, is hereby acknowledged. Bidder By: Bid Form Page 3 CERTIFICATE OF ISSUE PRICE The undersigned hereby certifies as follows with respect to the bid and purchase of the City of Clovis, New Mexico Gross Receipts Tax Improvement Revenue Bonds, Series 2012 (the “Bonds”): 1. The undersigned is the duly authorized representative of the purchaser (the “Purchaser”) of the Bonds from the City of Clovis, New Mexico (the “Issuer”). 2. All of the Bonds have been offered to members of the public in a bona fide initial offering. For purposes of this Certificate, the term “public” does not include any bond houses, brokers, dealers, and similar persons or organizations acting in the capacity of underwriters or wholesalers (including the Purchaser or members of the selling group or persons that are related to, or controlled by, or are acting on behalf of or as agents for the undersigned or members of the selling group). 3. Each maturity of the Bonds was offered to the public at a price which, on the date of such offering, was reasonably expected by the Purchaser to be equal to the fair market value of such maturity. 4. Other than the obligations set forth in paragraph 5 hereof (the “Retained Maturity” or “Retained Maturities”), the first price/yield at which a substantial amount (i.e., at least ten (10) percent) of the principal amount of each maturity of the Bonds was sold to the public is set forth below. Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Principal Amount Interest Rate $1,260,000 1,225,000 1,270,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 440,000 405,000 [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] 5. In the case of the Retained Maturities, the Purchaser reasonably expected on the offering date to sell a substantial amount (i.e., at least ten (10) percent) of each Retained Maturity at the initial offering price/yield as set forth below: 6. Please choose the appropriate statement: ( ) The Purchaser will not purchase bond insurance for the Bonds. Bid Form Page 4 ( ) The Purchaser will purchase bond insurance from ________________ (the “Insurer) for a fee/premium of $_____________ (the “Fee”). The Fee is a reasonable amount payable solely for the transfer of credit risk for the payment of debt service on the Bonds and does not include any amount payable for a cost other than such guarantee, e.g., a credit rating or legal fees. The Purchaser represents that the present value of the Fee for each obligation constituting the Bonds to which such Fee is properly allocated and which are insured thereby is less than the present value of the interest reasonably expected to be saved as a result of the insurance on each obligation constituting the Bonds. The Fee has been paid to a person who is not exempt from federal income taxation and who is not a user or related to the user of any proceeds of the Bonds. In determining present value for this purpose, the yield of the Bonds (determined with regard to the payment of the guarantee fee) has been used as the discount rate. No portion of the Fee is refundable upon redemption of any of the Bonds in an amount which would exceed the portion of such Fee that has not been earned. 7. The Purchaser understands that the statements made herein will be relied upon, by the Issuer in its effort to comply with the conditions imposed by the Internal Revenue Code of 1986, and by Bond Counsel in rendering their opinion that the interest on the Bonds is excludable from the gross income of the owners thereof. EXECUTED and DELIVERED this ____ day of _____________, 2012. Purchaser By: Title: Bid Form Page 5 APPENDIX D FORM OF CONTINUING DISCLOSURE UNDERTAKING Section 1. Recitals. This Continuing Disclosure Undertaking (this “Undertaking”) is executed and delivered by the City of Clovis, New Mexico (the “City”) in connection with the issuance by the City of $9,000,000 City of Clovis, New Mexico Gross Receipts Tax Improvement Revenue Bonds, Series 2012 (the “Bonds”). The Bonds are being issued pursuant to the Ordinance No. 1985-2012 adopted by the City on August 16, 2012, as amended and supplemented by Resolution No. ___ adopted by the City on September 20, 2012 (collectively, the “Ordinance”). In order to allow the underwriters of the Bonds to comply with the Rule (defined below), the City is required to make certain continuing disclosure undertakings for the benefit of owners (including beneficial owners) of the Bonds (the “Owners”). This Undertaking is intended to satisfy the requirements of the Rule. Section 2. Definitions. (a) “Annual Financial Information” means the financial information (which will be based on financial statements prepared in accordance with generally accepted accounting principles, as in effect from time to time (“GAAP”), for governmental units as prescribed by the Governmental Accounting Standards Board (“GASB”) or operating date with respect to the City) delivered at least annually pursuant to Sections 3(a) and 3(b), consisting of information of the type included in the section of the Official Statement entitled “PLEDGED REVENUES.” Annual Financial Information may, but is not required to, include Audited Financial Statements. (b) “Audited Financial Statements” means the City’s annual financial statements, prepared in accordance with GAAP for governmental units as prescribed from time to time by GASB, which financial statements have been audited by such auditor as may then be required or permitted by the laws of the State. (c) “EMMA” means the MSRB’s Electronic Municipal Market Access system located on its website at emma.msrb.org. (d) “Event Information” means the information delivered pursuant to Section 3(d). (e) “MSRB” means the Municipal Securities Rulemaking Board. The current address of the MSRB is 1900 Duke Street, Suite 600, Alexandria, Virginia 22314, telephone (703) 797-6600, fax (703) 797-6708. (f) “Official Statement” means the Official Statement delivered in connection with the original issue and sale of the Bonds. (g) “Report Date” means December 31st of each year, beginning in 2013. (h) “Rule” means Rule 15c2-12 promulgated by the SEC under the Securities Exchange Act of 1934, as amended (17 C.F.R. Part 240, § 240.15c2-12), as the same may be amended from time to time. (i) “SEC” means the Securities and Exchange Commission. (j) “State” means the State of New Mexico. Section 3. Provision of Annual Information and Reporting of Event Information. (a) The City, or its designated agent, will provide the Annual Financial Information for the preceding fiscal year to EMMA on or before each Report Date while the Bonds are outstanding. (b) If Audited Financial Statements are not provided as a part of the Annual Financial Information, the City, or its designated agent, will provide unaudited financial statements as part of the Annual Financial Information. In such cases, Audited Financial Statements will be provided to EMMA when and if available. (c) The City, or its designated agent, may provide Annual Financial Information by specific reference to other documents, including information reports and official statements relating to other debt issues of the City, which have been submitted to EMMA or filed with the SEC; provided, however, that if the document so referenced is a "final official statement" within the meaning of the Rule, such final official statement must also be available from the MSRB. (d) The City, or its designated agent, will provide, to EMMA, notice of any of the following events with respect to the Bonds in a timely manner not in excess of ten (10) business days after the occurrence of the event: (i) principal and interest payment delinquencies; (ii) non-payment related defaults, if material; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; (vii) modifications to rights of security holders, if material; (viii) bond calls, if material or tender offers; (ix) defeasances; (x) release, substitution or sale of property securing repayment of the securities, if material; (xi) rating changes; (xii) bankruptcy, insolvency, receivership or a similar event with respect to the City or an obligated person; (xiii) the consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (xiv) appointment of a successor or additional trustee, or a change of name of a trustee, if material. (e) The City, or its designated agent, will provide, to EMMA, notice of any of the following events with respect to the Bonds in a timely manner not in excess of ten (10) business days after the occurrence of the event: (i) failure of the City to timely provide the Annual Financial Information as specified in Sections 3(a) and 3(b) herein; (ii) changes in its fiscal year-end; and (iii) amendment of this Undertaking. Section 4. Method of Transmission. Unless otherwise required by law and subject to technical and economic feasibility, the City, or its designated agent, will employ such methods of electronic or physical information transmission as are requested or recommended from time to time by EMMA, the MSRB and the SEC. Section 5. Enforcement. The obligations of the City under this Undertaking are for the benefit of the Owners. Each Owner is authorized to take action to seek specific performance by court order to compel the City to comply with its obligations under this Undertaking, which action will be the exclusive remedy available to it or any other Owner. The City’s breach of its obligations under this Undertaking will not constitute an event of default under the Ordinance and none of the rights and remedies provided by the Ordinance will be available to the Owners with respect to such a breach. Section 6. Term. The City’s obligations under this Undertaking will be in effect from and after the issuance and delivery of the Bonds and will extend to the earliest of (i) the date all principal and interest on the Bonds have been paid or legally defeased pursuant to the terms of the Ordinance; (ii) the date on which the City is no longer an “obligated person” with respect to the Bonds within the meaning of the Rule; or (iii) the date on which those portions of the Rule which require this Undertaking are determined to be invalid or unenforceable by a court of competent jurisdiction in a non-appealable action, have been repealed retroactively or otherwise do not apply to the Bonds. Section 7. Amendments. The City may amend this Undertaking from time to time, without the consent of any Owner upon the City’s receipt of an opinion of independent counsel experienced in federal securities laws to the effect that such amendment: (a) is made in connection with a change in circumstances that arises from a change in legal requirements, a change in law, a change in the identity, nature or status of the City or a change in the availability or character of financial information for the City; (b) this Undertaking, as amended, would have complied with the Rule at the time of the initial issue and sale of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any changes in circumstances; and (c) the amendment does not materially impair the interests of the Owners. Any Annual Financial Information containing amended operating data or financial information will explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment changes the accounting principles to be followed in preparing financial statements, the Annual Financial Information and Audited Financial Statements for the year in which the change is made will present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. Section 8. Beneficiaries. This Undertaking binds and inures to the sole benefit of the City and the Owners, and creates no rights in any other person or entity. Section 9. Special Funds. This Undertaking is subject to the availability of necessary funds from annual Pledged Revenues (as defined by the Ordinance). Section 10. Governing Law. This Undertaking is governed by and is to be construed in accordance with the law of the State. Date: October __, 2012 CITY OF CLOVIS, NEW MEXICO By Mayor Y:\dox\client\85381\0001\GENERAL\W1769441.DOCX
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